QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-19034

REGENERON PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

New York

13-3444607

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

777 Old Saw Mill River Road

Tarrytown, New York

10591-6707

(Address of principal executive offices)

(Zip Code)

(914) 347-7000

(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).

Yes o No þ

Number of shares outstanding of each of the registrants classes of common stock as of July 15, 2008:

The interim Condensed Financial Statements of Regeneron Pharmaceuticals, Inc. (Regeneron or
the Company) have been prepared in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all information and disclosures necessary for
a presentation of the Companys financial position, results of operations, and cash flows in
conformity with accounting principles generally accepted in the United States of America. In the
opinion of management, these financial statements reflect all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the Companys financial position,
results of operations, and cash flows for such periods. The results of operations for any interim
periods are not necessarily indicative of the results for the full year. The December 31, 2007
Condensed Balance Sheet data were derived from audited financial statements, but do not include all
disclosures required by accounting principles generally accepted in the United States of America.
These financial statements should be read in conjunction with the financial statements and notes
thereto contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2007.

Included in research and development expenses is the Companys share of VEGF Trap-Eye
development expenses incurred by Bayer HealthCare LLC, including the Companys share of Bayer
HealthCares estimated VEGF Trap-Eye development expenses for the most recent interim fiscal
quarter. Bayer HealthCares estimate is reconciled to their actual expenses for such quarter in
the subsequent interim fiscal quarter and the Companys share of VEGF Trap-Eye development expenses
incurred by Bayer HealthCare is adjusted accordingly. During the three and six months ended June
30, 2008, the Company recognized cost sharing of Bayer HealthCare VEGF Trap-Eye development
expenses of $8.8 million and $15.4 million, respectively. For the three months ended June 30,
2008, cost sharing of Bayer HealthCare development expenses consists of $12.5 million of estimated
second quarter expense less a $3.7 million adjustment to reconcile Bayer HealthCares actual first
quarter 2008 VEGF Trap-Eye development expenses to their prior estimate.

2. ARCALYST®(rilonacept) Product Revenue and Inventory

Product Revenue

In March 2008, ARCALYST® (rilonacept) became available for prescription in the
United States for the treatment of Cryopyrin-Associated Periodic Syndromes (CAPS). During the
second quarter and first half of 2008, the Company shipped $1.6 million and $2.4 million,
respectively, of ARCALYST to its distributors. The Company will recognize revenue from product
sales in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104).
Revenue from product sales is recognized when persuasive evidence of an arrangement exists, title
to product and associated risk of loss has passed to the customer, the price is fixed or
determinable, collection from the customer is reasonably assured and the Company has no further
performance obligations. When recognized, revenues from product sales will be recorded net of
applicable provisions for prompt pay discounts, product returns, and estimated rebates. The
Company will account for these reductions in accordance with Emerging

Issues Task Force Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products) (EITF 01-9), and Statement of Financial
Accounting Standards No. (SFAS) 48, Revenue Recognition When Right of Return Exists, as
applicable.

Since the Company has no historical return or rebate experience for ARCALYST®
(rilonacept), no product sales revenue has been recognized in the first half of 2008, and revenue
recognition has been fully deferred until the right of return no longer exists and rebates have
been processed, or until the Company can reasonably estimate returns and rebates. At June 30,
2008, deferred revenue related to ARCALYST product sales, net of prompt pay discounts and
distributor fees, totaled $2.3 million.

Inventory

The Company began capitalizing inventory costs associated with commercial supplies of ARCALYST
subsequent to receipt of marketing approval from the U.S. Food and Drug Administration (FDA) in
February 2008. Costs for manufacturing supplies of ARCALYST prior to receipt of FDA approval were
recognized as research and development expenses in the period that the costs were incurred.
Therefore, these costs will not be included in cost of goods sold when revenue is recognized from
the sale of those supplies of ARCALYST. At June 30, 2008, inventoried costs related to ARCALYST
were insignificant.

3. Per Share Data

The Companys basic and diluted net loss per share amounts have been computed by dividing net
loss by the weighted average number of shares of Common Stock and Class A Stock outstanding. Net
loss per share is presented on a combined basis, inclusive of Common Stock and Class A Stock
outstanding, as each class of stock has equivalent economic rights. For the three and six months
ended June 30, 2008 and 2007, the Company reported net losses; therefore, no common stock
equivalents were included in the computation of diluted net loss per share for these periods, since
such inclusion would have been antidilutive. The calculations of basic and diluted net loss per
share are as follows:

Shares issuable upon the exercise of stock options, vesting of restricted stock awards, and
conversion of convertible debt, which have been excluded from the June 30, 2008 and 2007 diluted
per share amounts because their effect would have been antidilutive, include the following:

In the first half of 2008, the Company recognized $1.1 million of compensation expense related
to Restricted Stock awards, the fair value of which is expensed, on a pro rata basis, over the
period that the restrictions on the shares lapse.

Included in accounts payable and accrued expenses at June 30, 2008 and December 31, 2007 were
$3.2 million and $1.7 million, respectively, of accrued capital expenditures. Included in accounts
payable and accrued expenses at June 30, 2007 and December 31, 2006 were $1.3 million and $0.8
million, respectively, of accrued capital expenditures.

Included in accounts payable and accrued expenses at December 31, 2007 and 2006 were $1.1
million and $1.4 million, respectively, of accrued Company 401(k) Savings Plan contribution
expense. In the first quarter of 2008 and 2007, the Company contributed 58,575 and 64,532 shares,
respectively, of Common Stock to the 401(k) Savings Plan in satisfaction of these obligations.

Included in marketable securities at June 30, 2008 and December 31, 2007 were $1.3 million and
$2.2 million, respectively, of accrued interest income. Included in marketable securities at June
30, 2007 and December 31, 2006 were $2.2 million and $1.5 million, respectively, of accrued
interest income.

5. Fair Value of Financial Assets

Adoption of Statement of Financial Accounting Standards No. 157

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 157, Fair
Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value
in accordance with accounting principles generally accepted in the United States, and expands
disclosures about fair value measurements. The Company adopted the provisions of SFAS 157 as of
January 1, 2008, for financial instruments. Although the adoption of SFAS 157 did not materially
impact the Companys financial condition, results of operations, or cash flows, the Company is now
required to provide additional disclosures as part of its financial statements.

SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. The three tiers are Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an entity to develop its own
assumptions.

The Companys assets that are measured at fair value on a recurring basis, and subject to the
disclosure requirements of SFAS 157 at June 30, 2008, were as follows:

Fair Value Measurements at Reporting Date Using

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Fair Value at

Identical Assets

Inputs

Inputs

Description

June 30, 2008

(Level 1)

(Level 2)

(Level 3)

Available-for-sale
marketable securities

$

450,714

$

445,719

$

4,995

The Company held no Level 1 marketable securities during the three or six months ended June
30, 2008.

Marketable securities included in Level 2 above were valued using a market approach utilizing
prices and other relevant information generated by market transactions involving identical or
comparable assets.

Marketable securities included in Level 3 above were valued using information provided by the
Companys investment advisors, including quoted bid prices which take into consideration the
securities current lack of liquidity. During the second quarter of 2008, further deterioration in
the credit quality of a marketable security from one issuer has subjected the Company to the risk
of not being able to recover the securitys $0.8 million carrying value. As a result, the Company
recognized a $0.5 million charge related to this marketable security, which the Company considered
to be other than temporarily impaired.

Changes in marketable securities included in Level 3 above during the three and six months
ended June 30, 2008 were as follows:

Level 3

marketable

securities

Balance, January 1 and April 1, 2008

$

7,950

Settlements

(2,425

)

Impairments

(530

)

Balance, June 30, 2008

$

4,995

There were no unrealized gains or losses related to the Companys Level 3 marketable
securities for the three and six months ended June 30, 2008. In addition, there were no purchases
of Level 3 marketable securities and no transfers of marketable securities between the Level 2 and
Level 3 classifications during the three and six months ended June 30, 2008.

Accounts receivable as of June 30, 2008 and December 31, 2007 consist of the following:

June 30,

December 31,

2008

2007

Receivable from the sanofi-aventis Group

$

30,438

$

14,244

Receivable from Bayer HealthCare

2,797

Other

2,400

1,279

$

32,838

$

18,320

7. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses as of June 30, 2008 and December 31, 2007 consist of the
following:

June 30,

December 31,

2008

2007

Accounts payable

$

10,436

$

8,128

Payable to Bayer HealthCare

5,634

4,892

Accrued payroll and related costs

10,639

14,514

Accrued clinical trial expense

4,334

5,609

Accrued expenses, other

5,886

3,797

Interest payable on convertible notes

1,360

2,292

$

38,289

$

39,232

8. Repurchases of Convertible Debt

In the second quarter of 2008, the Company repurchased $81.3 million in principal amount of
its 5.5% Convertible Senior Subordinated Notes due October 17, 2008 (the Notes) for $82.1
million. In connection with the repurchases of the Notes, the Company recognized a $0.9 million
loss on early extinguishment of debt, representing the premium paid on the Notes plus related
unamortized debt issuance costs. At June 30, 2008, $118.7 million of the Notes remained
outstanding.

9. Comprehensive Loss

The Company presents comprehensive income (loss) in accordance with SFAS 130, Reporting
Comprehensive Income. Comprehensive loss of the Company includes net loss adjusted for the change
in net unrealized gain (loss) on marketable securities. The net effect of income taxes on
comprehensive loss is immaterial. For the three and six months ended June 30, 2008 and 2007, the
components of comprehensive loss are:

In July 2008, the Company and Cellectis S.A. (Cellectis) entered into an Amended and
Restated Non-Exclusive License Agreement (the License Agreement). The License Agreement resolves
a dispute between the parties related to the interpretation of a license agreement entered into by
the parties in December 2003 pursuant to which the Company licensed certain patents and patent
applications from Cellectis. Pursuant to the License Agreement, in July 2008, the Company made a
non-refundable $12.5 million payment to Cellectis (the License Payment) and agreed to pay
Cellectis a low single-digit royalty based on revenue received by the Company from any future
licenses or sales of the Companys VelociGene® or VelocImmune® products and
services. No royalties are payable with respect to the Companys VelocImmune license agreements
with AstraZeneca UK Limited (AstraZeneca) and Astellas Pharma Inc. (Astellas) or the Companys
November 2007 collaboration with sanofi-aventis. Moreover, no royalties are payable on any revenue
from commercial sales of antibodies from the Companys VelocImmune technology.

The Company began amortizing the License Payment in the second quarter of 2008 in proportion
to past and future anticipated revenues under the Companys license agreements with AstraZeneca and
Astellas and the Discovery and Preclinical Development Agreement under the Companys November 2007
collaboration with sanofi-aventis. The Company recognized $1.6 million of expense in connection
with the License Payment, which was accrued at June 30, 2008.

In July 2008, the Company and Cellectis also entered into a Subscription Agreement pursuant to
which the Company has agreed to purchase 368,301 ordinary shares of Cellectis at a price of EUR
8.63 per share (which is equivalent to $13.59 at the June 30 EUR exchange rate). The purchase is
contingent upon approval by the board of directors of Cellectis and by the shareholders of
Cellectis at an extraordinary general meeting to be held no later than October 30, 2008.

From time to time, the Company is a party to legal proceedings in the course of its business.
The Company does not expect any such current legal proceedings to have a material adverse effect on
the Companys business or financial condition.

12. Future Impact of Recently Issued Accounting Standards

In November 2007, the Emerging Issues Task Force issued Statement No. 07-1, Accounting for
Collaborative Arrangements (EITF 07-1). EITF 07-01 defines collaborative arrangements and
establishes reporting requirements for transactions between participants in a collaborative
arrangement and between participants in the arrangement and third parties. EITF 07-1 also
establishes the appropriate income statement presentation and classification for joint operating
activities and payments between participants, as well as the sufficiency of the disclosures related
to these arrangements. EITF 07-1 is effective for fiscal years beginning after December 15, 2008,
and will be applied retrospectively as a change in accounting principle for collaborative
arrangements existing at the effective date. The Company is required to adopt EITF 07-1 for the
fiscal year beginning January 1, 2009. Management does not anticipate that the adoption of EITF
07-1 will have a material impact on the Companys financial statements.

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging
Activities  an Amendment of FASB Statement 133. SFAS 161 enhances required disclosures regarding
derivatives and hedging activities, including enhanced disclosures regarding how (a) an entity uses
derivative instruments, (b) derivative instruments and related hedged items are accounted for under
SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and (c) derivative
instruments and related hedged items affect an entitys financial position, financial performance,
and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after
November 15, 2008. The Company is required to adopt SFAS 161 for the fiscal year beginning January
1, 2009. Management does not anticipate that the adoption of SFAS 161 will have a material impact
on the Companys financial statements.

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the
Useful Life of Intangible Assets. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS 142, Goodwill and Other Intangible Assets. The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and
the period of expected cash flows used to measure the fair value of the asset under SFAS 141R, and
other generally accepted accounting principles (GAAP). This FSP is effective for fiscal years
beginning after December 15, 2008. Early adoption is prohibited. The Company is required to adopt
FSP FAS 142-3 for the fiscal year beginning January 1, 2009. Management does not anticipate that
the adoption of this FSP will have a material impact on the Companys financial statements.

In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with GAAP in the United States. Any effect of applying
the provisions of SFAS 162 shall be reported as a change in accounting principle in accordance with
SFAS 154, Accounting Changes and Error Corrections. SFAS 162 is effective 60 days following
approval by the Securities and Exchange Commission of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles. Management does not anticipate that the adoption of SFAS 162 will have a
material impact on the Companys financial statements.

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The discussion below contains forward-looking statements that involve risks and uncertainties
relating to future events and the future financial performance of Regeneron Pharmaceuticals, Inc.,
and actual events or results may differ materially. These statements concern, among other things,
the possible success and therapeutic applications of our product candidates and research programs,
the timing and nature of the clinical and research programs now underway or planned, and the future
sources and uses of capital and our financial needs. These statements are made by us based on
managements current beliefs and judgment. In evaluating such statements, stockholders and
potential investors should specifically consider the various factors identified under the caption
Risk Factors which could cause actual events or results to differ materially from those indicated
by such forward-looking statements. We do not undertake any obligation to update publicly any
forward-looking statement, whether as a result of new information, future events, or otherwise,
except as required by law.

Overview

Regeneron Pharmaceuticals, Inc. is a biopharmaceutical company that discovers, develops, and
commercializes pharmaceutical products for the treatment of serious medical conditions. We
currently have one marketed product: ARCALYST® (rilonacept) Injection for Subcutaneous
Use, which is now available for prescription in the United States for the treatment of
Cryopyrin-Associated Periodic Syndromes (CAPS), including Familial Cold Auto-inflammatory Syndrome
(FCAS) and Muckle-Wells Syndrome (MWS) in adults and children 12 and older. We also have four
clinical development programs, including two late-stage clinical programs. The late stage programs
are aflibercept (VEGF Trap), which is being developed in oncology in collaboration with the
sanofi-aventis Group and VEGF Trap-Eye, which is being developed in eye diseases using intraocular
delivery in collaboration with Bayer HealthCare LLC. ARCALYST® (rilonacept; also known
as IL-1 Trap) is also in a Phase 2 safety and efficacy trial for the prevention of gout flares
induced by the initiation of uric acid-lowering drug therapy used to control gout. Our fourth
clinical development program is REGN88, an antibody to the interleukin-6 receptor (IL-6R) that is
being developed with sanofi-aventis. REGN88 entered clinical development in patients with
rheumatoid arthritis in the fourth quarter of 2007.

We expect that our next generation of product candidates will be based on our proprietary
technologies for developing human monoclonal antibodies. Our antibody program is being conducted
in collaboration with sanofi-aventis. Our preclinical research programs are in the areas of
oncology and angiogenesis, ophthalmology, metabolic and related diseases, muscle diseases and
disorders, inflammation and immune diseases, bone and cartilage, pain, and cardiovascular diseases.
Developing and commercializing new medicines entails significant risk and expense.

Our core business strategy is to maintain a strong foundation in basic scientific research and
discovery-enabling technology and combine that foundation with our manufacturing and clinical
development capabilities to build a successful, integrated biopharmaceutical company. We believe
that our ability to develop product candidates is enhanced by the application of our technology
platforms. Our discovery platforms are designed to identify specific genes of

therapeutic interest for a particular disease or cell type and validate targets through
high-throughput production of mammalian models. Our human monoclonal antibody technology
(VelocImmune®) and cell line expression technologies may then be utilized to design and
produce new product candidates directed against the disease target. Based on the VelocImmune
platform which we believe, in conjunction with our other proprietary technologies, can accelerate
the development of fully human monoclonal antibodies, we moved our first antibody product candidate
(REGN88) into clinical trials in 2007. We plan to file Investigational New Drug Applications
(INDs) for an antibody to Delta-like ligand-4 (Dll4) and one additional antibody product candidate
by the end of 2008. We plan to advance two to three antibody product candidates into clinical
development each year. We continue to invest in the development of enabling technologies to assist
in our efforts to identify, develop, and commercialize new product candidates.

In February 2008,
we received marketing approval from the U.S. Food and Drug Administration (FDA) for
ARCALYST® (rilonacept) Injection for Subcutaneous Use for the treatment of Cryopyrin-Associated Periodic
Syndromes (CAPS), including Familial Cold Auto-inflammatory Syndrome (FCAS) and Muckle-Wells
Syndrome (MWS) in adults and children 12 and older. In March 2008, ARCALYST became available for
prescription in the United States and we began making shipments to our distributors. Since
ARCALYST became available for commercial sale, we have been transitioning the patients who
participated in the CAPS pivotal study from clinical study drug to commercial quantities of
ARCALYST. We expect this transition process to be completed this year and currently project
shipments of ARCALYST to our distributors to total approximately $10 million in 2008. During the
second quarter and first half of 2008, we shipped $1.6 million and $2.4 million, respectively, of
ARCALYST to our distributors. In July 2008, we submitted a Marketing Authorization Application
(MAA) with the European Medicines Agency (EMEA) for ARCALYST for the treatment of CAPS in the
European Union.

ARCALYST is a protein-based
product designed to bind the interleukin-1 (called IL-1) cytokine
and prevent its interaction with cell surface receptors. ARCALYST is
the only therapy approved for patients with CAPS, a group of rare,
inherited, auto-inflammatory conditions characterized by life-long,
recurrent symptoms of rash, fever/chills, joint pain, eye
redness/pain, and fatigue. Intermittent, disruptive exacerbations or
flares can be triggered at any time by exposure to cooling
temperatures, stress, exercise, or other unknown stimuli. CAPS is caused by a range of mutations in the gene NLRP3 (formerly
known as CIAS1) which encodes a protein named cryopyrin. In addition to FCAS and MWS, CAPS includes Neonatal Onset Multisystem
Inflammatory Disease (NOMID). ARCALYST has not been studied for the treatment of NOMID.

Late-Stage Clinical Programs:

Below is a summary of the status of our late-stage clinical candidates:

Aflibercept is a protein-based product candidate designed to bind all forms of Vascular
Endothelial Growth Factor-A (called VEGF-A, also known as Vascular Permeability Factor or VPF) and
the related Placental Growth Factor (called PlGF), and prevent their interaction with cell surface
receptors. VEGF-A (and to a less validated degree, PlGF) is required for the growth of new blood
vessels (a process known as angiogenesis) that are needed for tumors to grow and is a potent
regulator of vascular permeability and leakage.

Aflibercept is being developed in cancer indications in collaboration with sanofi-aventis. We
and sanofi-aventis currently are enrolling patients in four Phase 3
trials that combine aflibercept with standard chemotherapy regimens. One trial
is evaluating aflibercept as a 1st line treatment for metastatic androgen independent
prostate cancer in combination with docetaxel/prednisone. A second trial is evaluating aflibercept
as a 2nd line treatment for metastatic non-small cell lung cancer in combination with
docetaxel. The third Phase 3 trial is evaluating aflibercept as a 1st line treatment
for metastatic pancreatic cancer in combination with gemcitabine. The fourth Phase 3 trial is
evaluating aflibercept as a 2nd line treatment for metastatic colorectal cancer in
combination with FOLFIRI (Folinic Acid (leucovorin), 5-fluorouracil,
and irinotecan). All four trials are studying the current standard of
chemotherapy care for the cancer being studied with and without
aflibercept. In addition, a Phase 2 study of aflibercept in
1st-line metastatic colorectal cancer in combination with Folinic
Acid (leucovirin), 5-fluorouracil, and oxaliplatin is
expected to begin later in 2008.

Aflibercept is also being studied in a Phase 2 single-agent study in advanced ovarian cancer
(AOC) patients with symptomatic malignant ascites (SMA). This trial is approximately three-fourths
enrolled and patients continue to be enrolled in the study. In 2004, the FDA granted Fast Track
designation to aflibercept for the treatment of SMA. In a separate non-blinded study of patients
with AOC and SMA who were treated with aflibercept dosed 4 mg/kg every 2 weeks, 8 out of the 10
evaluable patients achieved the primary endpoint of the study, defined as at least a doubling of
the time to repeat paracentesis compared to their baseline average. The results of this study were
summarized in the published abstracts of the 2008 American Society of Clinical Oncology (ASCO)
meeting.

Sanofi-aventis has also expanded the development program to Japan, where they are conducting
Phase 1 safety and tolerability studies in combination with standard chemotherapies in patients
with advanced solid malignancies.

In May 2008, we and sanofi-aventis reported results of a randomized, double-blind, Phase 2
study of 215 women with AOC who were treated with aflibercept as a single-agent at a dose of either
2 milligrams per kilogram (mg/kg) or 4 mg/kg every two weeks. The study did not achieve its primary
endpoint of demonstrating that patients in either arm of the study achieved a RECIST (Response
Evaluation Criteria in Solid Tumors) response rate as assessed by an independent review committee
that was statistically significantly greater than 5 percent. Side effects of treatment with
aflibercept were typical of this class of anti-angiogenic agents, with hypertension being the most
common grade 3/4 adverse event. The results were consistent with the interim data of the same
trial reported at the 2007 ASCO meeting.

In addition, more than 13 studies are currently underway or scheduled to begin that are being
or will be conducted in conjunction with the National Cancer Institute (NCI) Cancer Therapy
Evaluation Program (CTEP) evaluating aflibercept as a single agent or in combination with
chemotherapy regimens in a variety of cancer indications. At the 2008 ASCO meeting, investigators
reported preliminary results of a study of single-agent aflibercept in 48 patients with either
relapsed or first recurrence temozolomide-resistant glioblastoma multiforme or anaplastic glioma.
Responses were achieved in 50 percent of patients with anaplastic glioma and 30 percent of patients
with glioblastoma. Grade 3 adverse events included fatigue, hypertension, hand-foot syndrome,
lymphopenia, thrombosis, and proteinuria.

Aflibercept Collaboration with the sanofi-aventis Group

In September 2003, we entered into a collaboration agreement with Aventis Pharmaceuticals,
Inc. (predecessor to sanofi-aventis U.S.) to collaborate on the development and commercialization
of aflibercept in all countries other than Japan, where we retained the exclusive right to develop
and commercialize aflibercept. In January 2005, we and sanofi-aventis amended the collaboration
agreement to exclude, from the scope of the collaboration, the development and commercialization of
aflibercept for intraocular delivery to the eye. In December 2005, we and sanofi-aventis amended
our collaboration agreement to expand the territory in which the companies are collaborating on the
development of aflibercept to include Japan. Under the collaboration agreement, as amended, we and
sanofi-aventis will share co-promotion rights and profits on sales, if any, of aflibercept outside
of Japan for disease indications included in our collaboration. In Japan, we are entitled to a
royalty of approximately 35% on annual sales of aflibercept, subject to certain potential
adjustments. We may also receive up to $400.0 million in milestone payments upon receipt of
specified marketing approvals. This total includes up to $360.0 million in milestone payments
related to receipt of marketing approvals for up to eight aflibercept oncology and other
indications in the United States or the European Union. Another $40.0 million of milestone
payments relate to receipt of marketing approvals for up to five oncology indications in Japan.

Under the aflibercept collaboration agreement, as amended, agreed upon worldwide development
expenses incurred by both companies during the term of the agreement will be funded by
sanofi-aventis. If the collaboration becomes profitable, we will be obligated to reimburse
sanofi-aventis for 50% of aflibercept development expenses in accordance with a formula based on
the amount of development expenses and our share of the collaboration profits and Japan royalties,
or at a faster rate at our option.

2. VEGF Trap  Eye Diseases

VEGF Trap-Eye is a form of the VEGF Trap that has been purified and formulated with excipients
and at concentrations suitable for direct injection into the eye. We and Bayer HealthCare are
currently testing VEGF Trap-Eye in a Phase 3 program in patients with the neovascular form of
Age-related Macular Degeneration (wet AMD). We initiated the first Phase 3 trial in wet AMD in
the third quarter of 2007, and in May 2008, we and Bayer HealthCare announced that Bayer Healthcare had initiated a
second Phase 3 trial. These Phase 3 trials in wet AMD, known as VIEW 1 and VIEW 2 (VEGF
Trap: Investigation of Efficacy and Safety in Wet age-related macular
degeneration), are comparing VEGF Trap-Eye and ranibizumab (Lucentis®, a registered

trademark of Genetech, Inc.), an anti-angiogenic agent approved for use in wet AMD. VIEW 1 is
being conducted in North America and VIEW 2 is being conducted in Europe, Asia Pacific, Japan and
Latin America. The VIEW 1 and VIEW 2 trials are both evaluating dosing intervals of four and eight
weeks for VEGF Trap-Eye compared with ranibizumab dosed according to its U.S. label every four
weeks over the first year.

In April 2008, we and Bayer HealthCare announced the 32-week endpoint results of a Phase 2
study evaluating VEGF Trap-Eye in wet AMD, which were presented at the 2008 Association for
Research in Vision and Ophthalmology (ARVO) meeting in Fort Lauderdale, Florida. The 32-week
analysis showed that VEGF Trap-Eye dosed on a PRN (as-needed) dosing schedule maintained the
statistically significant gain in visual acuity achieved after an initial 12-week fixed-dosing
phase.

Study results showed that across all dose groups in the study population the 6.6 mean letter
gain in visual acuity achieved versus baseline at the week 16 evaluation visit, following 12 weeks
of fixed dosing, was maintained out to week 32 (a 6.7 mean letter gain versus baseline; p<
0.0001) using a PRN dosing schedule (where dosing frequency was determined by the physicians
assessment of pre-specified criteria). The decrease in retinal thickness, an anatomical measure of
treatment effect, achieved with a fixed-dose schedule was also maintained for all dose groups
combined at week 32 (a 137 micron mean decrease versus baseline, p<0.0001).

In this double-masked, prospective, randomized, multi-center Phase 2 trial, 157 patients were
randomized to five dose groups and treated with VEGF Trap-Eye in one eye. Two groups initially
received monthly doses of 0.5 or 2.0 milligrams (mg) of VEGF Trap-Eye for 12 weeks and three groups
received quarterly doses of 0.5, 2.0, or 4.0 mg of VEGF Trap-Eye (at baseline and week 12).
Following the initial 12-week fixed-dose phase of the trial, patients continued to receive therapy
at the same dose on a PRN dosing schedule based upon the physician assessment of the need for
re-treatment in accordance with pre-specified criteria. Patients were monitored for safety,
retinal thickness, and visual acuity. These data represent the week 32 analysis from a 52-week
study.

VEGF Trap-Eye was generally safe and well-tolerated and there were no reported drug-related
serious adverse events. There was one reported case of culture-negative endophthalmitis/uveitis in
the study eye, which was deemed not to be drug-related. The most common adverse events were those
typically associated with intravitreal injections.

After the last fixed-dose administration at week 12, patients from all dose groups combined
required, on average, only one additional injection over the following 20 weeks to maintain the

visual acuity gain established during the fixed-dosing period. Notably, 55% of the patients
who received 2.0 mg monthly for 12 weeks did not require any additional treatment throughout the
next 20-week PRN dosing period. Moreover, 97% of the patients who received 2.0 mg monthly for 12
weeks did not require re-dosing at the week 16 evaluation visit, indicating that an 8-week dosing
schedule may be feasible.

We and Bayer HealthCare are also developing VEGF Trap-Eye in diabetic macular edema (DME) and
plan to initiate a Phase 2 study in patients with DME.

VEGF-A both stimulates angiogenesis and increases vascular permeability. It has been shown in
preclinical studies to be a major pathogenic factor in both wet AMD and diabetic retinopathy, and
it is believed to be involved in other medical problems affecting the eyes. Wet AMD and diabetic
retinopathy (DR) are two of the leading causes of adult blindness in the developed world. In both
conditions, severe visual loss is caused by a combination of retinal edema and neovascular
proliferation.

Collaboration with Bayer HealthCare

In October 2006, we entered into a collaboration agreement with Bayer HealthCare for the
global development and commercialization outside the United States of VEGF Trap-Eye. Under the
agreement, we and Bayer HealthCare will collaborate on, and share the costs of, the development of
VEGF Trap-Eye through an integrated global plan that encompasses wet AMD, diabetic eye diseases,
and other diseases and disorders. Bayer HealthCare will market VEGF Trap-Eye outside the United
States, where the companies will share equally in profits from any future sales of VEGF Trap-Eye.
If VEGF Trap-Eye is granted marketing authorization in a major market country outside the United
States, we will be obligated to reimburse Bayer HealthCare for 50% of the development costs that it
has incurred under the agreement from our share of the collaboration profits. Within the United
States, we retain exclusive commercialization rights to VEGF Trap-Eye and are entitled to all
profits from any such sales. We received an up-front payment of $75.0 million from Bayer
HealthCare. In 2007, we received a $20.0 million milestone payment from Bayer HealthCare following
dosing of the first patient in the Phase 3 study of VEGF Trap-Eye in wet AMD, and can earn up to
$90.0 million in additional development and regulatory milestones related to the development of
VEGF Trap-Eye and marketing approvals in major market countries outside the United States. We can
also earn up to $135.0 million in sales milestones if total annual sales of VEGF Trap-Eye outside
the United States achieve certain specified levels starting at $200.0 million.

3.
ARCALYST®(rilonacept)  Inflammatory Diseases

We are also evaluating ARCALYST in a number of diseases and disorders, in addition to CAPS,
where IL-1 may play an important role. A Phase 2 safety and efficacy trial of ARCALYST is
currently underway in the prevention of gout flares induced by the initiation of uric acid-lowering
drug therapy used to control gout. We expect the results of this trial to be available in
September 2008. We previously reported positive results from an exploratory proof of concept study
of ARCALYST in ten patients with chronic active gout. In those patients, treatment with ARCALYST
demonstrated a statistically significant reduction in patient pain scores in the single-blind,
placebo-controlled study. Mean patients pain scores, the key

symptom measure in persistent gout, were reduced 41% (p=0.025) during the first two weeks of
active treatment and reduced 56% (p<0.004) after six weeks of active treatment. In this study,
in which safety was the primary endpoint measure, treatment with ARCALYST® (rilonacept)
was generally well-tolerated.

Under a March 2003 collaboration agreement with Novartis Pharma AG, we retain the right to
elect to collaborate in the future development and commercialization of a Novartis IL-1 antibody
which is in clinical development. Following completion of Phase 2 development and submission to us
of a written report on the Novartis IL-1 antibody, we have the right, in consideration for an
opt-in payment, to elect to co-develop and co-commercialize the Novartis IL-1 antibody in North
America. If we elect to exercise this right, we are responsible for paying 45% of post-election
North American development costs for the antibody product. In return, we are entitled to
co-promote the Novartis IL-1 antibody, and to receive 45% of net profits on sales of the antibody
product, in North America. Under certain circumstances, we are also entitled to receive royalties
on sales of the Novartis IL-1 antibody in Europe.

Under the collaboration agreement, Novartis has the right to elect to collaborate in the
development and commercialization of a second generation IL-1 Trap following completion of its
Phase 2 development, should we decide to clinically develop such a second generation product
candidate. Novartis does not have any rights or options with respect to ARCALYST.

Antibody Research Technologies and Development Program:

One way that a cell communicates with other cells is by releasing specific signaling proteins,
either locally or into the bloodstream. These proteins have distinct functions, and are classified
into different families of molecules, such as peptide hormones, growth factors, and cytokines.
All of these secreted (or signaling) proteins travel to and are recognized by another set of
proteins, called receptors, which reside on the surface of responding cells. These secreted
proteins impact many critical cellular and biological processes, causing diverse effects ranging
from the regulation of growth of particular cell types, to inflammation mediated by white blood
cells. Secreted proteins can at times be overactive and thus result in a variety of diseases. In
these disease settings, blocking the action of secreted proteins can have clinical benefit.

Regeneron scientists have developed two different technologies to design protein therapeutics
to block the action of specific secreted proteins. The first technology, termed the Trap
technology, was used to generate our first approved product, ARCALYST for the treatment of CAPS,
and our current clinical pipeline, including aflibercept, VEGF Trap-Eye, and ARCALYST in other
indications. These novel Traps are composed of fusions between two distinct receptor components
and the constant region of an antibody molecule called the Fc region, resulting in high affinity
product candidates.

Regeneron scientists also have discovered and developed a new technology for designing protein
therapeutics that facilitates the discovery and production of fully human monoclonal antibodies.
We call our technology VelocImmune® and, as described below, we believe that it is an
improved way of generating a wide variety of high affinity, therapeutic, fully human monoclonal
antibodies.

We have developed a novel mouse technology platform, called VelocImmune, for producing fully
human monoclonal antibodies. The VelocImmune mouse platform was generated by exploiting our
VelociGene®technology platform (see below), in a process in which six megabases of mouse immune
gene loci were replaced, or humanized, with corresponding human immune gene loci. The
VelocImmune mice can be used to generate efficiently fully human monoclonal antibodies to targets
of therapeutic interest. VelocImmune and our related technologies offer the potential to increase
the speed and efficiency through which human monoclonal antibody therapeutics may be discovered and
validated, thereby improving the overall efficiency of our early stage drug development activities.
We are utilizing the VelocImmune technology to produce our next generation of drug candidates for
preclinical development, and are exploring possible additional licensing arrangements with third
parties related to VelocImmune and related technologies.

Antibody Collaboration with sanofi-aventis

In November 2007, we and sanofi-aventis entered into a global, strategic collaboration to
discover, develop, and commercialize fully human monoclonal antibodies. The first therapeutic
antibody to enter clinical development under the collaboration, REGN88, is an antibody to the
interleukin-6 receptor (IL-6R), which has started clinical trials in rheumatoid arthritis. The
second is expected to be an antibody to Delta-like ligand-4 (Dll4), for which we plan to file an
IND by the end of 2008. The collaboration is governed by a Discovery and Preclinical Development
Agreement and a License and Collaboration Agreement. We received a non-refundable, up-front
payment of $85.0 million from sanofi-aventis under the discovery agreement. In addition,
sanofi-aventis will fund up to $475.0 million of our research for identifying and validating
potential drug discovery targets and developing fully human monoclonal antibodies against these
targets through December 31, 2012. Sanofi-aventis also has an option to extend the discovery
program for up to an additional three years for further antibody development and preclinical
activities.

For each drug candidate identified under the discovery agreement, sanofi-aventis has the
option to license rights to the candidate under the license agreement. If it elects to do so,
sanofi-aventis will co-develop the drug candidate with us through product approval. Development
costs will be shared between the companies, with sanofi-aventis funding drug candidate development
costs up front. We are generally responsible for reimbursing sanofi-aventis for half of the total
development costs for all collaboration products from our share of profits from commercialization
of collaboration products to the extent they are sufficient for this purpose. Sanofi-aventis will
lead commercialization activities for products developed under the license agreement, subject to
our right to co-promote such products. The parties will equally share profits and losses from
sales within the United States. The parties will share profits outside the United States on a
sliding scale based on sales starting at 65% (sanofi-aventis)/35% (us) and ending at 55%
(sanofi-aventis)/45% (us), and will share losses outside the United States at 55%
(sanofi-aventis)/45% (us). In addition to profit sharing, we are entitled to receive up to $250.0
million in sales milestone payments, with milestone payments commencing after aggregate annual
sales outside the United States exceed $1.0 billion on a rolling 12-month basis.

In February 2007, we entered into a non-exclusive license agreement with AstraZeneca UK
Limited that allows AstraZeneca to utilize our VelocImmune®technology in its internal research
programs to discover human monoclonal antibodies. Under the terms of the agreement, AstraZeneca
made two $20.0 million annual, non-refundable payments to us, one in February 2007 and the other in
February 2008. AstraZeneca is required to make up to four additional annual payments of $20.0
million, subject to its ability to terminate the agreement after making two such additional
payments or earlier if the technology does not meet minimum performance criteria. We are entitled
to receive a mid-single-digit royalty on any future sales of antibody products discovered by
AstraZeneca using our VelocImmune technology.

License Agreement with Astellas

In March 2007, we entered into a non-exclusive license agreement with Astellas Pharma Inc.
that allows Astellas to utilize our VelocImmune technology in its internal research programs to
discover human monoclonal antibodies. Under the terms of the agreement, Astellas made two $20.0
million non-refundable payments to us, one in April 2007 and the other in June 2008. Astellas is
required to make up to four additional annual payments of $20.0 million, subject to its ability to
terminate the agreement after making two such additional payments or earlier if the technology does
not meet minimum performance criteria. We are entitled to receive a mid-single-digit royalty on
any future sales of antibody products discovered by Astellas using our VelocImmune technology.

VelociGene®and VelociMouse (Target Validation)

Our VelociGene platform allows custom and precise manipulation of very large sequences of DNA
to produce highly customized alterations of a specified target gene and accelerates the production
of knock-out and transgenic expression models without using either positive/negative selection or
isogenic DNA. In producing knock-out models, a color or fluorescent marker is substituted in place
of the actual gene sequence, allowing for high-resolution visualization of precisely where the gene
is active in the body, during normal body functioning, as well as in disease processes. For the
optimization of pre-clinical development and toxicology programs,
VelociGene offers the opportunity
to humanize targets by replacing the mouse gene with the human homolog. Thus, VelociGene allows
scientists to rapidly identify the physical and biological effects of deleting or over-expressing
the target gene, as well as to characterize and test potential therapeutic molecules.

The VelociMouse technology also allows for the direct and immediate generation of genetically
altered mice from embryonic stem cells (ES cells), thereby avoiding the lengthy process involved in
generating and breeding knockout mice from chimeras. Mice generated through this method are normal
and healthy and exhibit a 100% germ-line transmission. Furthermore, Regenerons VelociMice are
suitable for direct phenotyping or other studies.

In September 2006, we were awarded a five-year grant from the National Institutes of Health
(NIH) as part of the NIHs Knockout Mouse Project. The goal of the Knockout Mouse Project is to
build a comprehensive and broadly available resource of knockout mice to accelerate the
understanding of gene function and human diseases. We use our VelociGene®technology to take aim at
3,500 of the most difficult genes to target and which are not currently the focus of other
large-scale knockout mouse programs. We also agreed to grant a limited license to a consortium of
research institutions, the other major participants in the Knockout Mouse Project, to use
components of our VelociGene technology in the Knockout Mouse Project. We are generating a
collection of targeting vectors and targeted mouse ES cells which can be used to produce knockout
mice. These materials will be made widely available to academic researchers without charge. We
will receive a fee for each targeted ES cell line or targeting construct made by us or the research
consortium and transferred to commercial entities.

Under the NIH grant, we are entitled to receive a minimum of $17.9 million over a five-year
period. We will receive another $1.0 million to optimize our existing C57BL/6 ES cell line and its
proprietary growth medium, both of which will be supplied to the research consortium for its use in
the Knockout Mouse Project. We have the right to use, for any purpose, all materials generated by
us and the research consortium.

Cell Line Expression Technologies

Many proteins that are of potential pharmaceutical value are proteins which are secreted
from the cells into the bloodstream. Examples of secreted proteins include growth factors (such as
insulin and growth hormone) and antibodies. Current technologies for the isolation of cells
engineered to produce high levels of secreted proteins are both laborious and time consuming. We
have developed enabling platforms for the rapid generation of expression cell lines for our Traps
and our VelocImmune®human monoclonal antibodies.

General

Developing and commercializing new medicines entails significant risk and expense. Before
revenues from the commercialization of product candidates can be realized, we (or our
collaborators) must overcome a number of hurdles which include successfully completing research and
development and obtaining regulatory approval from the FDA and regulatory authorities in other
countries. In addition, the biotechnology and pharmaceutical industries are rapidly evolving and
highly competitive, and new developments may render our products and technologies uncompetitive or
obsolete.

From inception on January 8, 1988 through June 30, 2008, we had a cumulative loss of $823.3
million. As described above, in February 2008, we received FDA approval for ARCALYST®
(rilonacept) for the treatment of CAPS. These rare diseases affect a very small group of people.
As a result, we can not predict whether the commercialization of ARCALYST in CAPS will result in a
significant net cash benefit to us. In the absence of significant revenues from the
commercialization of our product candidates or other sources, the amount, timing, nature, and
source of which cannot be predicted, our losses will continue as we conduct our research and
development activities. We expect to incur substantial losses over the next several

years as we continue the clinical development of VEGF Trap-Eye and ARCALYST in other
indications; advance new product candidates into clinical development from our existing research
programs utilizing our technology for designing fully human monoclonal antibodies; continue our
research and development programs; and commercialize product candidates that receive regulatory
approval, if any. Also, our activities may expand over time and require additional resources, and
we expect our operating losses to be substantial over at least the next several years. Our losses
may fluctuate from quarter to quarter and will depend on, among other factors, the progress of our
research and development efforts, the timing of certain expenses, and the amount and timing of
payments that we receive from collaborators.

The planning, execution, and results of our clinical programs are significant factors that can
affect our operating and financial results. In our clinical programs, key events in 2008 and plans
over the next 12 months are as follows:

Clinical Program

2008 Events to Date

2008-9 Plans

ARCALYST®
(rilonacept; also
known as IL-1 Trap)

 Received FDA approval for CAPS

 Launched ARCALYST commercially
in CAPS

 Report data from a Phase 2
study in gout

 Evaluate ARCALYST in
certain other disease
indications in which IL-1 may
play an important role

In March 2008, ARCALYST became available for prescription in the United States for the
treatment of CAPS and, during the second quarter and first half of 2008, we shipped $1.6 million
and $2.4 million, respectively, of ARCALYST to our distributors. We will recognize revenue from
product sales in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104).
Revenue from product sales is recognized when persuasive evidence of an arrangement exists, title
to product and associated risk of loss has passed to the customer, the price is fixed or
determinable, collection from the customer is reasonably assured and we have no further performance
obligations. When recognized, revenues from product sales will be recorded net of applicable
provisions for prompt pay discounts, product returns, and estimated rebates. We will account for
these reductions in accordance with Emerging Issues Task Force Issue No. 01-9, Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products) (EITF
01-9), and Statement of Financial Accounting Standards No. (SFAS) 48, Revenue Recognition When
Right of Return Exists, as applicable.

Since we have no historical return or rebate experience for ARCALYST, no product sales revenue
has been recognized in the first half of 2008, and revenue recognition has been fully deferred
until the right of return no longer exists and rebates have been processed, or until we can
reasonably estimate returns and rebates. At June 30, 2008, deferred revenue related to ARCALYST
product sales, net of prompt pay discounts and distributor fees, totaled $2.3 million. We
currently expect shipments of ARCALYST to our distributors to total approximately $10 million in
2008.

Inventory

We began capitalizing inventory costs associated with commercial supplies of ARCALYST
subsequent to receipt of marketing approval from the FDA in February 2008. Costs for manufacturing
supplies of ARCALYST prior to receipt of FDA approval were recognized as research and development
expenses in the period that the costs were incurred. Therefore, these costs will not be included in
cost of goods sold when revenue is recognized from the sale of those supplies of ARCALYST and we
anticipate that ARCALYST cost of goods sold will be insignificant in 2008. At June 30, 2008,
inventoried costs related to ARCALYST were inconsequential.

License Agreement with Cellectis

In July 2008, we and Cellectis S.A. entered into an Amended and Restated Non-Exclusive License
Agreement. The amended license agreement resolves a dispute between the parties related to the
interpretation of a license agreement entered into by the parties in December 2003 pursuant to
which we licensed certain patents and patent applications relating to a process for the specific
replacement of a copy of a gene in the receiver genome by homologous recombination. Pursuant to
the amended license agreement, in July 2008, we made a non-refundable $12.5 million payment to
Cellectis and agreed to pay Cellectis a low single-digit royalty based on revenue received by us
from any future licenses or sales of our VelociGene®or VelocImmune®

products and services. No royalties are payable with respect
to our VelocImmune®license agreements with AstraZeneca and Astellas or our November 2007 collaboration with sanofi-aventis.
Moreover, no royalties are payable on any revenue from commercial sales of antibodies from our
VelocImmune technology.

We began amortizing our $12.5 million payment to Cellectis in the second quarter of 2008 in
proportion to past and anticipated future revenues under our license agreements with AstraZeneca
and Astellas and our antibody discovery agreement with sanofi-aventis. We recognized $1.6 million
of expense in connection with this payment, which was accrued at June 30, 2008.

In July 2008, we and Cellectis also entered into a Subscription Agreement pursuant to which we
agreed to purchase 368,301 ordinary shares of Cellectis at a price of EUR 8.63 per share. The
purchase is contingent upon approval by the board of directors of Cellectis and by the shareholders
of Cellectis at an extraordinary general meeting to be held no later than October 30, 2008.

Results of Operations

Three Months Ended June 30, 2008 and 2007

Net Loss:

Regeneron reported a net loss of $18.5 million, or $0.23 per share (basic and diluted), for
the second quarter of 2008 compared to a net loss of $26.8 million, or $0.41 per share (basic and
diluted), for the second quarter of 2007. The decrease in net loss was principally due to revenues
earned in the second quarter of 2008 in connection with our antibody collaboration with
sanofi-aventis and our VEGF Trap-Eye collaboration with Bayer HealthCare, partly offset by higher
research and development expenses.

Revenues:

Revenues for the three months ended June 30, 2008 and 2007 consist of the following:

contract research and development revenue from sanofi-aventis which, as detailed below, consists
partly of reimbursement for research and development expenses and partly of the recognition of
revenue related to non-refundable, up-front payments of $105.0 million related to the aflibercept
collaboration and $85.0 million related to the antibody collaboration. Non-refundable, up-front
payments are recorded as deferred revenue and recognized over the period over which we are
obligated to perform services. We estimate our performance periods based on the specific terms of
the collaboration agreements, and adjust the performance periods, if appropriate, based on the
applicable facts and circumstances.

Three months ended

June 30,

Sanofi-aventis Contract Research & Development Revenue

2008

2007

(In millions)

Aflibercept:

Regeneron expense reimbursement

$

10.3

$

11.3

Recognition of deferred revenue related to up-front payments

2.1

2.2

Total aflibercept

12.4

13.5

Antibody:

Regeneron expense reimbursement

23.6

Recognition of deferred revenue related to up-front payment

2.6

Total antibody

26.2

Total sanofi-aventis contract research & development revenue

$

38.6

$

13.5

Sanofi-aventis reimbursement of Regenerons aflibercept expenses decreased in the second
quarter of 2008 compared to the same period in 2007, primarily due to lower costs related to our
manufacture of aflibercept clinical supplies. Recognition of deferred revenue related to
sanofi-aventis up-front aflibercept payments decreased in the second quarter of 2008 compared to
the same period in 2007 due to an extension of the estimated performance period over which this
deferred revenue is being recognized. As of June 30, 2008, $57.0 million of the original $105.0
million of up-front payments related to aflibercept was deferred and will be recognized as revenue
in future periods.

In the second quarter of 2008, sanofi-aventis reimbursement of Regenerons antibody expenses
consisted of $17.3 million under the collaborations discovery agreement and $6.3 million of
development costs, primarily related to REGN88, under the license agreement. Recognition of
deferred revenue under the antibody collaboration related to sanofi-aventis $85.0 million up-front
payment. As of June 30, 2008, $78.9 million of this up-front payment was deferred and will be
recognized as revenue in future periods.

In connection with our VEGF Trap-Eye collaboration with Bayer HealthCare, through September
30, 2007, all payments received from Bayer HealthCare, including a $75.0 million non-refundable,
up-front payment, a $20.0 million milestone payment (which was received in August 2007 and not
considered substantive), and cost sharing reimbursements were fully deferred and included in
deferred revenue. Effective in the fourth quarter of 2007, we determined the appropriate
accounting policy for payments from Bayer HealthCare and commenced recognizing previously deferred
payments and cost-sharing of our and Bayer HealthCares 2007 VEGF Trap-Eye development expenses in
our Statement of Operations through a cumulative catch-up. The $75.0 million non-refundable,
up-front license payment and the $20.0 million milestone payment are being recognized as contract
research and development

revenue over the related estimated performance period in accordance with SAB 104 and EITF
00-21. In periods when we recognize VEGF Trap-Eye development expenses that we incur under the
collaboration, we also recognize, as contract research and development revenue, the portion of
those VEGF Trap-Eye development expenses that is reimbursable from Bayer HealthCare. In periods
when Bayer HealthCare incurs agreed upon VEGF Trap-Eye development expenses that benefit the
collaboration and Regeneron, we also recognize, as additional research and development expense, the
portion of Bayer HealthCares VEGF Trap-Eye development expenses that we are obligated to
reimburse. In the second quarter of 2008, we recognized contract research and development revenue
of $10.2 million from Bayer HealthCare, consisting of (i) $3.3 million related to the $75.0 million
up-front licensing payment and the $20.0 million milestone payment, and (ii) $6.9 million related
to the portion of our second quarter 2008 VEGF Trap-Eye development expenses that is reimbursable
from Bayer HealthCare. As of June 30, 2008, $72.5 million of the up-front licensing and milestone
payments was deferred and will be recognized as revenue in future periods.

Other contract research and development revenue includes $1.4 million and $1.6 million,
respectively, recognized in the second quarter of 2008 and 2007 in connection with our five-year
grant from the NIH, which we were awarded in September 2006 as part of the NIHs Knockout Mouse
Project.

In connection with our VelocImmune®license agreements with AstraZeneca and Astellas, each of
the $20.0 million annual, non-refundable payments is deferred upon receipt and recognized as
revenue ratably over approximately the ensuing year of each agreement. In the second quarter of
2008 and 2007, we recognized $10.0 million and $6.3 million, respectively, of technology licensing
revenue related to these agreements.

Expenses:

Total operating expenses increased to $80.0 million in the second quarter of 2008 from $52.8
million in the same period of 2007. Our average headcount increased to 771 in the second quarter
of 2008 from 618 in the same period of 2007 primarily to support expanding research and development
activities for our development programs, including ARCALYST® (rilonacept), aflibercept,
VEGF Trap-Eye, and monoclonal antibodies (such as REGN88 and the Dll4 antibody).

Operating expenses in the second quarter of 2008 and 2007 include a total of $8.2 million and
$6.9 million, respectively, of non-cash compensation expense related to employee stock option and
restricted stock awards (Non-cash Compensation Expense), as detailed below:

Research and development expenses increased to $66.6 million in the second quarter of 2008
from $43.9 million in the same period of 2007. The following table summarizes the major categories
of our research and development expenses for the three months ended June 30, 2008 and 2007:

Includes $4.2 million and $3.3 million of Non-cash Compensation Expense for the three
months ended June 30, 2008 and 2007, respectively.

(2)

Represents the full cost of manufacturing drug for use in research, preclinical
development, and clinical trials, including related payroll and benefits, Non-cash
Compensation Expense, manufacturing materials and supplies, depreciation, and occupancy
costs of our Rensselaer manufacturing facility. Includes $0.7 million of Non-cash
Compensation Expense for both the three months ended June 30, 2008 and 2007.

(3)

Under our collaboration with Bayer HealthCare, in periods when Bayer HealthCare incurs
VEGF Trap-Eye development expenses, we also recognize, as additional research and
development expense, the portion of their VEGF Trap-Eye development expenses that we are
obligated to reimburse. Bayer HealthCare provides us with estimated VEGF Trap-Eye
development expenses for the most recent interim fiscal quarter. Bayer HealthCares
estimate is reconciled to their actual expenses for such quarter in the subsequent interim
quarter and our portion of their VEGF Trap-Eye development expenses that we are obligated
to reimburse is adjusted accordingly. In the fourth quarter of 2007, we commenced
recognizing cost-sharing of our and Bayer Healthcares VEGF Trap-Eye development expenses.

Payroll and benefits increased principally due to the increase in employee headcount, as
described above. Clinical trial expenses increased due primarily to higher costs related to our
Phase 3 study of VEGF Trap-Eye in wet AMD, which we initiated in the third quarter of 2007, and
higher ARCALYST®(rilonacept) costs, primarily related to our Phase 2 gout-induced
flares clinical study. These increases were partially offset by lower costs related to our Phase 1
and 2 studies of VEGF Trap-Eye in wet AMD. Clinical manufacturing costs increased due primarily to
higher expenses related to REGN88, VEGF Trap-Eye, and our Dll4 antibody, partially offset by lower
costs related to ARCALYST and aflibercept. Research and preclinical development costs increased
primarily due to higher research and preclinical costs related to antibodies, including our Dll4
antibody, partially offset by lower preclinical costs associated with aflibercept, VEGF

Trap-Eye, and ARCALYST. Occupancy and other operating costs primarily increased in connection
with our higher headcount and to support our expanded research and development activities.
Cost-sharing of Bayer HealthCare VEGF Trap-Eye development expenses consists of $12.5 million of
estimated second quarter expense less a $3.7 million adjustment to reconcile Bayer HealthCares
actual first quarter 2008 VEGF Trap-Eye development expenses to their prior first quarter estimate
of their VEGF Trap-Eye development expenses.

We budget our research and development costs by expense category, rather than by project. We
also prepare estimates of research and development cost for projects in clinical development, which
include direct costs and allocations of certain costs such as indirect labor, Non-cash Compensation
Expense, and manufacturing and other costs related to activities that benefit multiple projects,
and, under our collaboration with Bayer HealthCare, the portion of Bayer HealthCares VEGF Trap-Eye
development expenses that we are obligated to reimburse. Our estimates of research and development
costs for clinical development programs are shown below:

For the three months ended June 30,

Increase

Project Costs

2008

2007

(Decrease)

(In millions)

ARCALYST® (rilonacept)

$

7.2

$

8.1

$

(0.9

)

Aflibercept

8.8

10.0

(1.2

)

VEGF Trap-Eye

22.2

8.4

13.8

REGN88

5.5

5.5

Other research programs & unallocated costs

22.9

17.4

5.5

Total research and development expenses

$

66.6

$

43.9

$

22.7

Drug development and approval in the United States is a multi-step process regulated by the
FDA. The process begins with discovery and preclinical evaluation, leading up to the submission of
an IND to the FDA which, if successful, allows the opportunity for study in humans, or clinical
study, of the potential new drug. Clinical development typically involves three phases of study:
Phase 1, 2, and 3. The most significant costs in clinical development are in Phase 3 clinical
trials, as they tend to be the longest and largest studies in the drug development process.
Following successful completion of Phase 3 clinical trials for a biological product, a biologics
license application (or BLA) must be submitted to, and accepted by, the FDA, and the FDA must
approve the BLA prior to commercialization of the drug. It is not uncommon for the FDA to request
additional data following its review of a BLA, which can significantly increase the drug
development timeline and expenses. We may elect either on our own, or at the request of the FDA,
to conduct further studies that are referred to as Phase 3B and 4 studies. Phase 3B studies are
initiated and either completed or substantially completed while the BLA is under FDA review. These
studies are conducted under an IND. Phase 4 studies, also referred to as post-marketing studies,
are studies that are initiated and conducted after the FDA has approved a product for marketing.
In addition, as discovery research, preclinical development, and clinical programs progress,
opportunities to expand development of drug candidates into new disease indications can emerge. We
may elect to add such new disease indications to our development efforts (with the approval of our
collaborator for joint development programs), thereby extending the period in which we will be
developing a product. For example, we, and our collaborators, where applicable, continue to
explore further development of ARCALYST, aflibercept, and VEGF Trap-Eye in
different disease indications.

There are numerous uncertainties associated with drug development, including uncertainties
related to safety and efficacy data from each phase of drug development, uncertainties related to
the enrollment and performance of clinical trials, changes in regulatory requirements, changes in
the competitive landscape affecting a product candidate, and other risks and uncertainties
described in Item 1A, Risk Factors under Risks
Related to ARCALYST® (rilonacept) and the Development of Our
Product Candidates, Regulatory and Litigation Risks, and Risks Related to Commercialization of
Products. The lengthy process of seeking FDA approvals, and subsequent compliance with applicable
statutes and regulations, require the expenditure of substantial resources. Any failure by us to
obtain, or delay in obtaining, regulatory approvals could materially adversely affect our business.

For these reasons and due to the variability in the costs necessary to develop a product and
the uncertainties related to future indications to be studied, the estimated cost and scope of the
projects, and our ultimate ability to obtain governmental approval for commercialization, accurate
and meaningful estimates of the total cost to bring our product candidates to market are not
available. Similarly, we are currently unable to reasonably estimate if our product candidates
will generate material product revenues and net cash inflows. In the first quarter of 2008, we
received FDA approval for ARCALYST for the treatment of CAPS, a group of rare, inherited
auto-inflammatory diseases. These rare diseases affect a very small group of people. As a result,
we can not predict whether the commercialization of ARCALYST in CAPS will result in a significant
net cash benefit to us.

Selling, General, and Administrative Expenses:

Selling,
general, and administrative expenses increased to $13.4 million in the second quarter
of 2008 from $8.9 million in the same period of 2007 due in part to costs associated with the
launch of ARCALYST in March 2008. In addition, during the second quarter of 2008, we incurred (i)
higher compensation expense due primarily to increases in selling and administrative headcount to
support our expanded research and development activities and ARCALYST commercialization activities,
(ii) higher recruitment and related costs associated with expanding our headcount, and (iii) higher
legal expenses related to general corporate matters.

Other Income and Expense:

Investment income decreased to $4.5 million in the second quarter of 2008 from $6.8 million in
the comparable quarter of 2007, due primarily to lower yields on our cash and marketable
securities, partly offset by higher cash and marketable security balances in 2008 versus 2007. In
addition, during the second quarter of 2008, further deterioration in the credit quality of a
marketable security from one issuer has subjected us to the risk of not being able to recover the
securitys $0.8 million carrying value. As a result, we recognized a $0.5 million charge related
to this security, which we considered to be other than temporarily impaired.

Interest expense of $2.7 million and $3.0 million in the second quarters of 2008 and 2007,
respectively, is attributable to our 5.5% Convertible Senior Subordinated Notes due October 17,
2008. In the second quarter of 2008, we repurchased $81.3 million in principal amount of these
convertible notes for $82.1 million. In connection with the repurchases, we recognized a $0.9

million loss on early extinguishment of debt, representing the premium paid on the notes plus
related unamortized debt issuance costs. At June 30, 2008, $118.7 million of the convertible notes
remained outstanding.

Six Months Ended June 30, 2008 and 2007

Net Loss:

Regeneron reported a net loss of $30.1 million, or $0.38 per share (basic and diluted), for
the first half of 2008 compared to a net loss of $56.7 million, or $0.86 per share (basic and
diluted), for the same period of 2007. The decrease in net loss was principally due to revenues
earned in the first half of 2008 in connection with our antibody collaboration with sanofi-aventis
and our VEGF Trap-Eye collaboration with Bayer HealthCare, partly offset by higher research and
development expenses.

Revenues:

Revenues for the six months ended June 30, 2008 and 2007 consist of the following:

(In millions)

2008

2007

Contract research & development revenue

Sanofi-aventis

$

74.3

$

25.3

Bayer HealthCare

19.2

Other

3.5

4.3

Total contract research &
development revenue

97.0

29.6

Technology licensing revenue

20.0

8.4

Total revenue

$

117.0

$

38.0

We recognize revenue from sanofi-aventis, in connection with our aflibercept and antibody
collaborations, in accordance with SAB 104 and EITF 00-21, as described above under Revenues for
the three months ended June 30, 2008 and 2007.

Six months ended

June 30,

Sanofi-aventis Contract Research & Development Revenue

2008

2007

(In millions)

Aflibercept:

Regeneron expense reimbursement

22.0

$

20.8

Recognition of deferred revenue related to up-front payments

4.2

4.5

Total aflibercept

26.2

25.3

Antibody:

Regeneron expense reimbursement

42.9

Recognition of deferred revenue related to up-front payment

5.2

Total antibody

48.1

Total sanofi-aventis contract research & development revenue

$

74.3

$

25.3

Sanofi-aventis reimbursement of Regenerons aflibercept expenses increased in the
first half of 2008 compared to the same period in 2007, primarily due to higher clinical
development costs.

Recognition of deferred revenue related to sanofi-aventis up-front aflibercept payments decreased
in the first half of 2008 compared to the same period in 2007 due to an extension of the estimated
performance period over which this deferred revenue is being recognized.

In the first half of 2008, sanofi-aventis reimbursement of Regenerons antibody expenses
consisted of $32.4 million under the collaborations discovery agreement and $10.5 million of
development costs, primarily related to REGN88, under the license agreement. Recognition of
deferred revenue under the antibody collaboration related to sanofi-aventis $85.0 million up-front
payment.

In the first half of 2008, we recognized contract research and development revenue of $19.2
million from Bayer HealthCare, consisting of (i) $6.6 million related to the $75.0 million up-front
licensing payment and the $20.0 million milestone payment, and (ii) $12.6 million related to the
portion of our VEGF Trap-Eye development expenses incurred in the
first half of 2008, that is
reimbursable from Bayer HealthCare.

Other contract research and development revenue includes $2.5 million and $2.3 million
recognized in the first half of 2008 and 2007, respectively, in connection with our five-year grant
from the NIH, which we were awarded in September 2006 as part of the NIHs Knockout Mouse Project.

In connection with our license agreements with AstraZeneca and Astellas, each of the $20.0
million annual, non-refundable payments are deferred upon receipt and recognized as revenue ratably
over approximately the ensuing year of each agreement. In the first half of 2008 and 2007, we
recognized $20.0 million and $8.4 million, respectively, of technology licensing revenue related to
these agreements.

Expenses:

Total operating expenses increased to $152.3 million in the first half of 2008 from $102.2
million in the same period of 2007. Our average headcount increased to 742 in the first half of
2008 from 602 in the same period of 2007 primarily to support expanding research and development
activities for our development programs, including ARCALYST® (rilonacept), aflibercept,
VEGF Trap-Eye, and monoclonal antibodies (such as REGN88 and the Dll4 antibody).

Operating expenses for the first six months of 2008 and 2007 include a total of $16.5 million
and $13.5 million, respectively, of non-cash compensation expense related to employee stock option
and restricted stock awards (Non-cash Compensation Expense), as detailed below:

Research and development expenses increased to $127.8 million in the first half of 2008 from
$85.1 million in the same period of 2007. The following table summarizes the major categories of
our research and development expenses for the six months ended June 30, 2008 and 2007:

Includes $8.4 million and $6.4 million of Non-cash Compensation Expense for the six
months ended June 30, 2008 and 2007, respectively.

(2)

Represents the full cost of manufacturing drug for use in research, preclinical
development, and clinical trials, including related payroll and benefits, Non-cash
Compensation Expense, manufacturing materials and supplies, depreciation, and occupancy
costs of our Rensselaer manufacturing facility. Includes $1.4 million and $1.5 million of
Non-cash Compensation Expense for the six months ended June 30, 2008 and 2007,
respectively.

(3)

Under our collaboration with Bayer HealthCare, in periods when Bayer HealthCare incurs
VEGF Trap-Eye development expenses, we also recognize, as additional research and
development expense, the portion of their VEGF Trap-Eye development expenses that we are
obligated to reimburse. Bayer HealthCare provides us with estimated VEGF Trap-Eye
development expenses for the most recent interim fiscal quarter. Bayer HealthCares
estimate is reconciled to their actual expenses for such quarter in the subsequent interim
quarter and our portion of their VEGF Trap-Eye development expenses that we are obligated
to reimburse is adjusted accordingly. In the fourth quarter of 2007, we commenced
recognizing cost-sharing of our and Bayer Healthcares VEGF Trap-Eye development expenses.

Payroll and benefits increased principally due to the increase in employee headcount, as
described above. Clinical trial expenses increased due primarily to higher costs related to our
Phase 3 study of VEGF Trap-Eye in wet AMD, which we initiated in the third quarter of 2007, and
higher ARCALYST®(rilonacept) costs, primarily related to our Phase 2 study in gout.
These increases were partially offset by lower costs related to our Phase 1 and 2 studies of VEGF
Trap-Eye in wet AMD. Clinical manufacturing costs increased due primarily to higher expenses
related to REGN88, VEGF Trap-Eye, and our Dll4 antibody, partially offset by lower costs related to
ARCALYST. Research and preclinical development costs increased primarily due to higher research
and preclinical costs related to antibodies, including our D114 antibody, partially offset by lower
preclinical costs associated with aflibercept, VEGF Trap-Eye, and ARCALYST.

Occupancy and other operating costs primarily increased in connection with our higher
headcount and to support our expanded research and development activities.

We budget our research and development costs by expense category, rather than by project. We
also prepare estimates of research and development cost for projects in clinical development, which
include direct costs and allocations of certain costs such as indirect labor, non-cash stock-based
employee compensation expense related to stock option awards, and manufacturing and other costs
related to activities that benefit multiple projects. Our estimates of research and development
costs for clinical development programs are shown below:

For the six months ended June 30,

Increase

Project Costs

2008

2007

(Decrease)

(In millions)

ARCALYST® (rilonacept)

$

15.2

$

15.9

$

(0.7

)

Aflibercept

18.9

17.8

1.1

VEGF Trap-Eye

38.8

14.2

24.6

REGN88

9.3

9.3

Other research programs & unallocated costs

45.6

37.2

8.4

Total research and development expenses

$

127.8

$

85.1

$

42.7

For the reasons described above under Research and Development Expenses for the three months
ended June 30, 2008 and 2007, and due to the variability in the costs necessary to develop a
product and the uncertainties related to future indications to be studied, the estimated cost and
scope of the projects, and our ultimate ability to obtain governmental approval for
commercialization, accurate and meaningful estimates of the total cost to bring our product
candidates to market are not available. Similarly, we are currently unable to reasonably estimate
if our product candidates will generate product revenues and material net cash inflows. In the
first quarter of 2008, we received FDA approval for ARCALYST for the treatment of CAPS, a group of
rare, inherited auto-inflammatory diseases. These rare diseases affect a very small group of
people. As a result, we can not predict whether the commercialization of ARCALYST in CAPS will
result in a significant net cash benefit to us.

Selling, General, and Administrative Expenses:

Selling, general, and administrative expenses increased to $24.5 million in the first half of
2008 from $17.1 million in the same period of 2007 due in part to costs associated with the launch
of ARCALYST in March 2008. In addition, during the second quarter of 2008, we incurred (i) higher
compensation expense due primarily to increases in selling and administrative headcount to support
our expanded research and development activities and ARCALYST commercialization activities, (ii)
higher recruitment and related costs associated with expanding our headcount, and (iii) higher fees
for consultants and other legal and professional services related to various general corporate
matters.

Other Income and Expense:

Investment income decreased to $11.8 million in the first half of 2008 from $13.6 million in the
same period of 2007, due primarily to lower yields on our cash and marketable securities, partly
offset by higher cash and marketable security balances in 2008 versus 2007. In addition, during
the second quarter of 2008, further deterioration in the credit quality of a marketable security

from one issuer has subjected us to the risk of not being able to recover the securitys $0.8
million carrying value. As a result, we recognized a $0.5 million charge related to this security,
which we considered to be other than temporarily impaired.

Interest expense of $5.7 million and $6.0 million in the first half of 2008 and 2007,
respectively, is attributable to our 5.5% Convertible Senior Subordinated Notes due October 17,
2008. In the second quarter of 2008, we repurchased $81.3 million in principal amount of these
convertible notes for $82.1 million. In connection with the repurchases, we recognized a $0.9
million loss on early extinguishment of debt, representing the premium paid on the notes plus
related unamortized debt issuance costs. At June 30, 2008, $118.7 million of the convertible notes
remained outstanding.

Accounting for Fair Value of Financial Assets

Adoption of Statement of Financial Accounting Standard No. 157

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in
accordance with accounting principles generally accepted in the United States, and expands
disclosures about fair value measurements. We adopted the provisions of SFAS 157 as of January 1,
2008, for financial instruments. Although the adoption of SFAS 157 did not materially impact our
financial condition, results of operations, or cash flows, we are now required to provide
additional disclosures as part of our financial statements.

SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. The three tiers are Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an entity to develop its own
assumptions.

We have determined that the provisions of SFAS 157 are applicable to our marketable
securities, which totaled $450.7 million as of June 30, 2008, and consisted of obligations of the
U.S. government and its agencies, investment grade debt securities issued by corporations,
governments and financial institutions, asset-backed securities, and commercial paper. All of our
marketable securities are considered to be available for sale, as defined by SFAS 115, Accounting
for Certain Investments in Debt and Equity Securities. At June 30, 2008, less than 2% of our
marketable securities represented Level 3 assets, and our other marketable securities represented
Level 2 assets.

Changes in Level 3 marketable securities during the six months ended June 30, 2008 were as
follows:

Level 3

marketable

(In millions)

securities

Balance January 1, 2008

$

7.9

Settlements

(2.4

)

Impairments

(0.5

)

Balance June 30, 2008

$

5.0

During the six months ended June 30, 2008, there were no transfers of marketable securities
between Level 2 and Level 3 classifications. We held no Level 1 marketable securities during the
first half of 2008.

Our methods for valuing our marketable securities are described in Note 5 to our condensed
financial statements included in this quarterly report on Form 10-Q. With respect to valuations
received from our investment advisors for pricing our Level 2 marketable securities, we review our
investment advisors policies and procedures for valuation. For valuations that we determine for
our Level 3 marketable securities, we regularly monitor these securities and adjust their
valuations as deemed appropriate based on the facts and circumstances.

Liquidity and Capital Resources

Since our inception in 1988, we have financed our operations primarily through offerings of
our equity securities, a private placement of convertible debt, revenue earned under our past and
present research and development and contract manufacturing agreements, including our agreements
with sanofi-aventis and Bayer HealthCare, and investment income.

Six months ended June 30, 2008 and 2007

At June 30, 2008, we had $744.5 million in cash, cash equivalents, restricted cash, and
marketable securities compared with $846.3 million at December 31, 2007. In February and June
2008, we received a $20.0 million annual, non-refundable payment in connection with our
non-exclusive license agreements with AstraZeneca and Astellas, respectively.

Cash Used in Operations:

Net cash used in operations was $11.7 million in the first six months of 2008 compared to
$12.7 million in the first six months of 2007. Our net losses of $30.1 million in the first half
of 2008 and $56.7 million in the first half of 2007 included $16.5 million and $13.5 million,
respectively, of Non-cash Compensation Expense.

At June 30, 2008, accounts receivable increased by $14.5 million, compared to end-of-year
2007, primarily due to higher receivable balances related to our collaborations with
sanofi-aventis. Also, our deferred revenue balances at June 30, 2008 increased by $6.5 million,
compared to end-of-year 2007, primarily due to the receipt of the $20.0 million payments from
AstraZeneca and Astellas, as described above, which were deferred and are being recognized

ratably over the ensuing year. This increase was partly offset by amortization of previously
received deferred payments under our collaborations with sanofi-aventis and Bayer HealthCare.

At June 30, 2007, accounts receivable balances increased by $13.0 million, compared to
end-of-year 2006, primarily due to amounts receivable from sanofi-aventis and Bayer HealthCare for
reimbursements of our aflibercept and VEGF Trap-Eye development costs, respectively. Also, our
deferred revenue balances at June 30, 2007 increased by $36.6 million, compared to end-of-year
2006, primarily due to the initial $20.0 million up-front payments received from each of
AstraZeneca and Astellas. These up-front payments have been recognized as revenue ratably over
approximately the ensuing year of each non-exclusive license agreement. In addition, for the first
six months of 2007, reimbursements from Bayer HealthCare of our 2007 VEGF Trap-Eye development
expenses, totaling $10.6 million, had been fully deferred and included in deferred revenue for
financial statement purposes, as described above.

Cash Provided by (Used in) Investing Activities:

Net cash used in investing activities was $116.6 million in the first six months of 2008
compared to $120.3 million in the same period of 2007, due primarily to a decrease in purchases of
marketable securities net of sales or maturities. In the first half of 2008, purchases of
marketable securities exceeded sales or maturities by $106.8 million, whereas in the first half of
2007, purchases of marketable securities exceeded sales or maturities by $117.3 million.

Cash (Used in) Provided by Financing Activities:

Cash used in financing activities was $78.5 million in the first six months of 2008 compared
to cash provided by financing activities of $4.8 million in the same period of 2007. In the second
quarter of 2008, the Company repurchased $81.3 million in principal amount of our convertible
senior subordinated notes for $82.1 million.

Capital Expenditures:

Our additions to property, plant, and equipment totaled $11.3 million and $3.5 million for the
first half of 2008 and 2007, respectively. During the remainder of 2008, we expect to incur
approximately $45 to $55 million in capital expenditures primarily in connection with expanding our
manufacturing capacity at our Rensselaer, New York facilities and tenant improvements and related
costs in connection with our new Tarrytown operating lease. We expect that approximately $30
million of projected 2008 Tarrytown tenant improvement costs will be reimbursed by our landlord in
connection with our new operating lease. We currently anticipate that other 2008 capital
expenditures will be funded from our existing capital resources.

Convertible Debt:

In 2001, we issued $200.0 million aggregate principal amount of convertible senior
subordinated notes, which bear interest at 5.5% per annum, payable semi-annually, and mature in
October 2008. In June 2008, we repurchased $81.3 million in principal amount of our notes for
$82.1 million. The remaining $118.7 million of outstanding notes are convertible into shares of
our Common Stock at a conversion price of approximately $30.25 per share, subject to

adjustment in certain circumstances. We may repurchase some or all of the remaining notes
prior to maturity from our existing capital resources. If the price per share of our Common Stock
is above $30.25 at maturity, we would expect the remaining outstanding notes to convert into shares
of Common Stock. Otherwise, we will be required to repay the remaining aggregate principal amount
of the notes at maturity from our existing capital resources.

License Agreement with Cellectis:

As described above, in July 2008, we and Cellectis entered into an Amended and Restated
Non-Exclusive License Agreement. Pursuant to the amended license agreement, in July 2008, we made
a non-refundable $12.5 million payment to Cellectis and agreed to pay Cellectis a low single-digit
royalty based on revenue received by us from any future licenses or sales of our VelociGene®or
VelocImmune®products and services. No royalties are payable with respect to our VelocImmune
license agreements with AstraZeneca and Astellas or our November 2007 collaboration with
sanofi-aventis. Moreover, no royalties are payable on any revenue from commercial sales of
antibodies from our VelocImmune technology.

In July 2008, we and Cellectis also entered into a Subscription Agreement pursuant to which we
would purchase 368,301 ordinary shares of Cellectis at a price of EUR 8.63 per share (which is
equivalent to $13.59 at the June 30 EUR exchange rate). The purchase is contingent upon approval
by the board of directors of Cellectis and by the shareholders of Cellectis at an extraordinary
general meeting to be held no later than October 30, 2008.

Funding Requirements:

We expect to continue to incur substantial funding requirements primarily for research and
development activities (including preclinical and clinical testing). Before taking into account
reimbursements from collaborators and potential repayment of our remaining convertible debt (as
described above), and exclusive of product revenues and costs in connection with
ARCALYST® (rilonacept) for the treatment of CAPS, we currently anticipate that
approximately 50-60% of our expenditures for 2008 will be directed toward the preclinical and
clinical development of product candidates, including ARCALYST in other indications, aflibercept,
VEGF Trap-Eye, and monoclonal antibodies (including REGN88 and the Dll4 antibody); approximately
15-20% of our expenditures for 2008 will be applied to our basic research and early preclinical
activities, and the remainder of our expenditures for 2008 will be used for the continued
development of our novel technology platforms, capital expenditures, and general corporate
purposes.

We currently anticipate that in 2008 the commercialization of ARCALYST for the treatment of
CAPS will not materially enhance or otherwise materially impact the Companys cash flows.

The amount we need to fund our operations will depend on various factors, including the status
of competitive products, sales of ARCALYST, the success of our research and development programs,
the potential future need to expand our professional and support staff and facilities, the status
of patents and other intellectual property rights, the delay or failure of a clinical trial of any
of our potential drug candidates, and the continuation, extent, and success of our collaborations
with sanofi-aventis and Bayer HealthCare. Clinical trial costs are dependent, among other things,
on the size and duration of trials, fees charged for services provided by

clinical trial investigators and other third parties, the costs for manufacturing the product
candidate for use in the trials, and for supplies, laboratory tests, and other expenses. The
amount of funding that will be required for our clinical programs depends upon the results of our
research and preclinical programs and early-stage clinical trials, regulatory requirements, the
duration and results of clinical trials underway and of additional clinical trials that we decide
to initiate, and the various factors that affect the cost of each trial as described above. In the
future, if we are able to successfully develop, market, and sell certain of our product candidates,
we may be required to pay royalties or otherwise share the profits generated on such sales in
connection with our collaboration and licensing agreements.

We expect that expenses related to the filing, prosecution, defense, and enforcement of patent
and other intellectual property claims will continue to be substantial as a result of patent
filings and prosecutions in the United States and foreign countries.

We believe that our existing capital resources, including funding we are entitled to receive
under our collaboration and licensing agreements, will enable us to meet operating needs through at
least 2012. However, this is a forward-looking statement based on our current operating plan, and
there may be a change in projected revenues or expenses that would lead to our capital being
consumed significantly before such time. If there is insufficient capital to fund all of our
planned operations and activities, we believe we would prioritize available capital to fund the
continued commercialization of ARCALYST® (rilonacept) and the cost of preclinical and
clinical development of our product candidates.

Other than letters of credit totaling $1.7 million, including a $1.6 million letter of credit
issued to our landlord in connection with our new operating lease for facilities in Tarrytown, New
York, we have no off-balance sheet arrangements. In addition, we do not guarantee the obligations
of any other entity. As of June 30, 2008, we had no established banking arrangements through which
we could obtain short-term financing or a line of credit. In the event we need additional
financing for the operation of our business, we will consider collaborative arrangements and
additional public or private financing, including additional equity financing. Factors influencing
the availability of additional financing include our progress in product development, investor
perception of our prospects, and the general condition of the financial markets. We may not be
able to secure the necessary funding through new collaborative arrangements or additional public or
private offerings. If we cannot raise adequate funds to satisfy our capital requirements, we may
have to delay, scale-back, or eliminate certain of our research and development activities or
future operations. This could materially harm our business.

Future Impact of Recently Issued Accounting Standards

In November 2007, the Emerging Issues Task Force issued Statement No. 07-1, Accounting for
Collaborative Arrangements (EITF 07-1). EITF 07-01 defines collaborative arrangements and
establishes reporting requirements for transactions between participants in a collaborative
arrangement and between participants in the arrangement and third parties. EITF 07-1 also
establishes the appropriate income statement presentation and classification for joint operating
activities and payments between participants, as well as the sufficiency of the disclosures related
to these arrangements. EITF 07-1 is effective for fiscal years beginning after December 15,

2008, and will be applied retrospectively as a change in accounting principle for
collaborative arrangements existing at the effective date. We are required to adopt EITF 07-1 for
the fiscal year beginning January 1, 2009. Our management does not anticipate that the adoption of
EITF 07-1 will have a material impact on our financial statements.

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging
Activities  an Amendment of FASB Statement 133. SFAS 161 enhances required disclosures regarding
derivatives and hedging activities, including enhanced disclosures regarding how (a) an entity uses
derivative instruments, (b) derivative instruments and related hedged items are accounted for under
SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and (c) derivative
instruments and related hedged items affect an entitys financial position, financial performance,
and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November
15, 2008. We are required to adopt SFAS 161 for the fiscal year beginning January 1, 2009. Our
management does not anticipate that the adoption of SFAS 161 will have a material impact on our
financial statements.

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the
Useful Life of Intangible Assets. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS 142, Goodwill and Other Intangible Assets. The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and
the period of expected cash flows used to measure the fair value of the asset under SFAS 141R, and
other generally accepted accounting principles (GAAP). This FSP is effective for fiscal years
beginning after December 15, 2008. Early adoption is prohibited. We are required to adopt FSP FAS
142-3 for the fiscal year beginning January 1, 2009. Our management does not anticipate that the
adoption of this FSP will have a material impact on our financial statements.

In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with GAAP in the United States. Any effect of applying
the provisions of SFAS 162 shall be reported as a change in accounting principle in accordance with
SFAS 154, Accounting Changes and Error Corrections. SFAS 162 is effective 60 days following
approval by the Securities and Exchange Commission of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles. Our management does not anticipate that the adoption of SFAS 162 will have
a material impact on our financial statements.

Our earnings and cash flows are subject to fluctuations due to changes in interest rates
primarily from our investment of available cash balances in investment grade corporate,
asset-backed, and U.S. government securities. We do not believe we are materially exposed to
changes in interest rates. Under our current policies, we do not use interest rate derivative
instruments to manage exposure to interest rate changes. We estimated that a one percent
unfavorable change in interest rates would result in approximately a $2.0 million decrease in the
fair value of our investment portfolio at both June 30, 2008 and 2007.

Credit Quality Risk:

We have an investment policy that includes guidelines on acceptable investment securities,
minimum credit quality, maturity parameters, and concentration and diversification. Nonetheless,
deterioration of the credit quality of an investment security subsequent to purchase may subject us
to the risk of not being able to recover the full principal value of the security. In the second
half of 2007, we recognized a $5.9 million charge related to marketable securities from two issuers
which we considered to be other than temporarily impaired in value. In the second quarter of 2008,
an additional $0.5 million impairment charge was recognized related to one of these securities.

Item 4. Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial
officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)), as of the end of the period covered by this report. Based on this
evaluation, our chief executive officer and chief financial officer each concluded that, as of the
end of such period, our disclosure controls and procedures were effective in ensuring that
information required to be disclosed by us in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized, and reported within the time periods specified in
applicable rules and forms of the Securities and Exchange Commission, and is accumulated and
communicated to our management, including our chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30,
2008 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

From time to time, we are a party to legal proceedings in the course of our business. We do
not expect any such current legal proceedings to have a material adverse effect on our business or
financial condition.

On July 1, 2008, we and Cellectis S.A. entered into an Amended and Restated Non-Exclusive
License Agreement. This agreement resolved a previously disclosed dispute between the parties
related to the interpretation of a license agreement entered into by the parties in December 2003
pursuant to which we licensed certain patents and patent applications relating to a process for the
specific replacement of a copy of a gene in the receiver genome by homologous recombination. For a
description of the Amended and Restated Non-Exclusive License Agreement, see License Agreement
with Cellectis above.

Item 1A. Risk Factors

We operate in an environment that involves a number of significant risks and uncertainties. We
caution you to read the following risk factors, which have affected, and/or in the future could
affect, our business, operating results, financial condition, and cash flows. The risks described
below include forward-looking statements, and actual events and our actual results may differ
substantially from those discussed in these forward-looking statements. Additional risks and
uncertainties not currently known to us or that we currently deem immaterial may also impair our
business operations. Furthermore, additional risks and uncertainties are described under other
captions in this report and should be considered by our investors.

We have had a history of operating losses and we may never achieve profitability. If we continue to
incur operating losses, we may be unable to continue our operations.

From inception on January 8, 1988 through June 30, 2008, we had a cumulative loss of $823.3
million. If we continue to incur operating losses and fail to become a profitable company, we may
be unable to continue our operations. In the absence of substantial revenue from the sale of
products or other sources, the amount, timing, nature or source of which cannot be predicted, our
losses will continue as we conduct our research and development activities.

We may need additional funding in the future, which may not be available to us, and which may force
us to delay, reduce or eliminate our product development programs or commercialization efforts.

We will need to expend substantial resources for research and development, including costs
associated with clinical testing of our product candidates. We believe our existing capital
resources, including funding we are entitled to receive under our collaboration agreements, will
enable us to meet operating needs through at least 2012; however, one or more of our collaboration
agreements may terminate, our projected revenue may decrease, or our expenses may increase and that
would lead to our capital being consumed significantly before such time.

We may require additional financing in the future and we may not be able to raise such
additional funds. If we are able to obtain additional financing through the sale of equity or
convertible debt securities, such sales may be dilutive to our shareholders. Debt financing
arrangements may require us to pledge certain assets or enter into covenants that would restrict
our business activities or our ability to incur further indebtedness and may contain other terms
that are not favorable to our shareholders. If we are unable to raise sufficient funds to complete
the development of our product candidates, we may face delay, reduction or elimination of our
research and development programs or preclinical or clinical trials, in which case our business,
financial condition or results of operations may be materially harmed.

We have a significant amount of debt that is scheduled to mature in 2008.

Following our recent repurchase of a portion of our outstanding convertible senior
subordinated notes, we now have $118.7 million of convertible debt that, unless converted to shares
of our Common Stock, will mature in October 2008. We could be required to use a significant portion
of our cash to repay the principal amount of our debt.

Risks Related to ARCALYST® (rilonacept) and the Development of Our Product Candidates

Successful development of any of our product candidates is highly uncertain.

Only a small minority of all research and development programs ultimately result in
commercially successful drugs. Even if clinical trials demonstrate safety and effectiveness of any
of our product candidates for a specific disease and the necessary regulatory approvals are
obtained, the commercial success of any of our product candidates will depend upon their acceptance
by patients, the medical community, and third-party payers and on our partners ability to
successfully manufacture and commercialize our product candidates. Our product candidates are
delivered either by intravenous infusion or by intravitreal or subcutaneous injections, which are
generally less well received by patients than tablet or capsule delivery. If our products are not
successfully commercialized, we will not be able to recover the significant investment we have made
in developing such products and our business would be severely harmed.

We are studying aflibercept, VEGF Trap-Eye, ARCALYST, and REGN88 in a wide variety of
indications. We are studying aflibercept in a variety of cancer settings, VEGF Trap-Eye in
different eye diseases and ophthalmologic indications, ARCALYST in a variety of systemic
inflammatory disorders, and REGN88 in a phase 1 rheumatoid arthritis trial. Many of these current
trials are exploratory studies designed to identify what diseases and uses, if any, are best suited
for our product candidates. It is likely that our product candidates will not demonstrate the
requisite efficacy and/or safety profile to support continued development for most of the
indications that are being, or are planned to be, studied. In fact, our product candidates may not
demonstrate the requisite efficacy and safety profile to support the continued development for any
of the indications or uses.

Clinical trials required for our product candidates are expensive and time-consuming, and their
outcome is highly uncertain. If any of our drug trials are delayed or yield unfavorable results, we
will have to delay or may be unable to obtain regulatory approval for our product candidates.

We must conduct extensive testing of our product candidates before we can obtain regulatory
approval to market and sell them. We need to conduct both preclinical animal testing and human
clinical trials. Conducting these trials is a lengthy, time-consuming, and expensive process. These
tests and trials may not achieve favorable results for many reasons, including, among others,
failure of the product candidate to demonstrate safety or efficacy, the development of serious or
life-threatening adverse events (or side effects) caused by or connected with exposure to the
product candidate, difficulty in enrolling and maintaining subjects in the clinical trial, lack of
sufficient supplies of the product candidate or comparator drug, and the failure of clinical
investigators, trial monitors and other consultants, or trial subjects to comply with the trial
plan or protocol. A clinical trial may fail because it did not include a sufficient number of
patients to detect the endpoint being measured or reach statistical significance. A clinical trial
may also fail because the dose(s) of the investigational drug included in the trial were either too
low or too high to determine the optimal effect of the investigational drug in the disease setting.

We will need to reevaluate any drug candidate that does not test favorably and either conduct
new trials, which are expensive and time consuming, or abandon the drug development program. Even
if we obtain positive results from preclinical or clinical trials, we may not achieve the same
success in future trials. Many companies in the biopharmaceutical industry, including us, have
suffered significant setbacks in clinical trials, even after promising results have been obtained
in earlier trials. The failure of clinical trials to demonstrate safety and effectiveness for the
desired indication(s) could harm the development of our product candidate(s), and our business,
financial condition, and results of operations may be materially harmed.

Serious complications or side effects have occurred, and may continue to occur, in connection with
the use of our approved product and in clinical trials of some of our product candidates which
could cause our regulatory approval to be revoked or otherwise negatively affected or lead to delay
or discontinuation of development of our product candidates which could severely harm our business.

During the conduct of clinical trials, patients report changes in their health, including
illnesses, injuries, and discomforts, to their study doctor. Often, it is not possible to determine
whether or not the drug candidate being studied caused these conditions. Various illnesses,
injuries, and discomforts have been reported from time-to-time during clinical trials of our
product candidates. It is possible as we test our drug candidates in larger, longer, and more
extensive clinical programs, illnesses, injuries, and discomforts that were observed in earlier
trials, as well as conditions that did not occur or went undetected in smaller previous trials,
will be reported by patients. Many times, side effects are only detectable after investigational
drugs are tested in large scale, Phase 3 clinical trials or, in some cases, after they are made
available to patients after approval. If additional clinical experience indicates that any of our
product candidates has many side effects or causes serious or life-threatening side effects, the
development of the product candidate may fail or be delayed, which would severely harm our
business.

Our aflibercept (VEGF Trap) is being studied for the potential treatment of certain types of
cancer and our VEGF Trap-Eye candidate is being studied in diseases of the eye. There are many
potential safety concerns associated with significant blockade of vascular endothelial growth
factor, or VEGF. These serious and potentially life-threatening risks, based on the clinical and
preclinical experience of systemically delivered VEGF inhibitors, including the systemic delivery
of the VEGF Trap, include bleeding, intestinal perforation, hypertension, and proteinuria. These
serious side effects and other serious side effects have been reported in our systemic VEGF Trap
studies in cancer and diseases of the eye. In addition, patients given infusions of any protein,
including the VEGF Trap delivered through intravenous administration, may develop severe
hypersensitivity reactions or infusion reactions. Other VEGF blockers have reported side effects
that became evident only after large scale trials or after marketing approval and large number of
patients were treated. These include side effects that we have not yet seen in our trials such as
heart attack and stroke. These and other complications or side effects could harm the development
of aflibercept for the treatment of cancer or VEGF Trap-Eye for the treatment of diseases of the
eye.

We have tested ARCALYST in only a small number of patients with CAPS. As more patients begin
to use our product and as we test it in new disease settings, new risks and side effects associated
with ARCALYST may be discovered, and risks previously viewed as inconsequential could be determined
to be significant. Like cytokine antagonists such as Kineret® (Amgen, Inc.),
EnbrelÒ (Immunex Corporation), and RemicadeÒ (Centocor, Inc.),
ARCALYST affects the immune defense system of the body by blocking some of its functions.
Therefore, ARCALYST may interfere with the bodys ability to fight infections. Treatment with
Kineret® (Amgen), a medication that works through the inhibition of IL-1, has been
associated with an increased risk of serious infections, and serious, life threatening infections
have been reported in patients taking ARCALYST. These or other complications or side effects could
cause regulatory authorities to revoke approvals of ARCALYST. Alternatively, we may be required to
conduct additional clinical trials, make changes in the labeling of our product, or limit or
abandon our efforts to develop ARCALYST in new disease settings. These side effects may also
result in a reduction, or even the elimination, of sales of ARCALYST in approved indications.

ARCALYST®(rilonacept) and our product candidates in development are recombinant
proteins that could cause an immune response, resulting in the creation of harmful or neutralizing
antibodies against the therapeutic protein.

In addition to the safety, efficacy, manufacturing, and regulatory hurdles faced by our
product candidates, the administration of recombinant proteins frequently causes an immune
response, resulting in the creation of antibodies against the therapeutic protein. The antibodies
can have no effect or can totally neutralize the effectiveness of the protein, or require that
higher doses be used to obtain a therapeutic effect. In some cases, the antibody can cross react
with the patients own proteins, resulting in an auto-immune type disease. Whether antibodies
will be created can often not be predicted from preclinical or clinical experiments, and their
detection or appearance is often delayed, so that there can be no assurance that neutralizing
antibodies will not be detected at a later date, in some cases even after pivotal clinical trials
have been completed. Antibodies directed against the receptor domains of rilonacept were detected
in patients with CAPS after treatment with ARCALYST® (rilonacept). Nineteen of 55
subjects (35%) who

received ARCALYST for at least 6 weeks tested positive for treatment-emerging binding
antibodies on at least one occasion. To date, no side effects related to antibodies were observed
in these subjects and there were no observed effects on drug efficacy or drug levels. It is
possible that as we continue to test aflibercept and VEGF Trap-Eye with more sensitive assays in
different patient populations and larger clinical trials, we will find that subjects given
aflibercept and VEGF Trap-Eye develop antibodies to these product candidates, and may also
experience side effects related to the antibodies, which could adversely impact the development of
such candidates.

We may be unable to formulate or manufacture our product candidates in a way that is suitable for
clinical or commercial use.

Changes in product formulations and manufacturing processes may be required as product
candidates progress in clinical development and are ultimately commercialized. If we are unable to
develop suitable product formulations or manufacturing processes to support large scale clinical
testing of our product candidates, including aflibercept, VEGF Trap-Eye, and REGN88, we may be
unable to supply necessary materials for our clinical trials, which would delay the development of
our product candidates. Similarly, if we are unable to supply sufficient quantities of our product
or develop product formulations suitable for commercial use, we will not be able to successfully
commercialize our product candidates.

Risks Related to Intellectual Property

If we cannot protect the confidentiality of our trade secrets or our patents are insufficient to
protect our proprietary rights, our business and competitive position will be harmed.

Our business requires using sensitive and proprietary technology and other information that we
protect as trade secrets. We seek to prevent improper disclosure of these trade secrets through
confidentiality agreements. If our trade secrets are improperly exposed, either by our own
employees or our collaborators, it would help our competitors and adversely affect our business. We
will be able to protect our proprietary rights from unauthorized use by third parties only to the
extent that our rights are covered by valid and enforceable patents or are effectively maintained
as trade secrets. The patent position of biotechnology companies involves complex legal and factual
questions and, therefore, enforceability cannot be predicted with certainty. Our patents may be
challenged, invalidated, or circumvented. Patent applications filed outside the United States may
be challenged by third parties who file an opposition. Such opposition proceedings are increasingly
common in the European Union and are costly to defend. We have patent applications that are being
opposed and it is likely that we will need to defend additional patent applications in the future.
Our patent rights may not provide us with a proprietary position or competitive advantages against
competitors. Furthermore, even if the outcome is favorable to us, the enforcement of our
intellectual property rights can be extremely expensive and time consuming.

We may be restricted in our development and/or commercialization activities by, and could be
subject to damage awards if we are found to have infringed, third party patents or other
proprietary rights.

Our commercial success depends significantly on our ability to operate without infringing the
patents and other proprietary rights of third parties. Other parties may allege that they have
blocking patents to our products in clinical development, either because they claim to hold
proprietary rights to the composition of a product or the way it is manufactured or used.
Moreover, other parties may allege that they have blocking patents to antibody products made using
our VelocImmune®technology, either because of the way the antibodies are discovered or produced or
because of a proprietary position covering an antibody or the antibodys target.

We are aware of patents and pending applications owned by Genentech that claim certain
chimeric VEGF receptor compositions. Although we do not believe that aflibercept or VEGF Trap-Eye
infringes any valid claim in these patents or patent applications, Genentech could initiate a
lawsuit for patent infringement and assert that its patents are valid and cover aflibercept or VEGF
Trap-Eye. Genentech may be motivated to initiate such a lawsuit at some point in an effort to
impair our ability to develop and sell aflibercept or VEGF Trap-Eye, which represents a potential
competitive threat to Genentechs VEGF-binding products and product candidates. An adverse
determination by a court in any such potential patent litigation would likely materially harm our
business by requiring us to seek a license, which may not be available, or resulting in our
inability to manufacture, develop and sell aflibercept or VEGF Trap-Eye or in a damage award.

We are aware of patents and pending applications owned by Roche that claim antibodies to the
interleukin-6 receptor and methods of treating rheumatoid arthritis with such antibodies. We are
developing REGN88, an antibody to the interleukin-6 receptor, for the treatment of rheumatoid
arthritis. Although we do not believe that REGN88 infringes any valid claim in these patents or
patent applications, Roche could initiate a lawsuit for patent infringement and assert its patents
are valid and cover REGN88.

Further, we are aware of a number of other third party patent applications that, if granted,
with claims as currently drafted, may cover our current or planned activities. We cannot assure
you that our products and/or actions in manufacturing and selling our product candidates will not
infringe such patents.

Any patent holders could sue us for damages and seek to prevent us from manufacturing,
selling, or developing our drug candidates, and a court may find that we are infringing validly
issued patents of third parties. In the event that the manufacture, use, or sale of any of our
clinical candidates infringes on the patents or violates other proprietary rights of third parties,
we may be prevented from pursuing product development, manufacturing, and commercialization of our
drugs and may be required to pay costly damages. Such a result may materially harm our business,
financial condition, and results of operations. Legal disputes are likely to be costly and time
consuming to defend.

We seek to obtain licenses to patents when, in our judgment, such licenses are needed. If any
licenses are required, we may not be able to obtain such licenses on commercially reasonable

terms, if at all. The failure to obtain any such license could prevent us from developing or
commercializing any one or more of our product candidates, which could severely harm our business.

Regulatory and Litigation Risks

If we do not obtain regulatory approval for our product candidates, we will not be able to market
or sell them.

We cannot sell or market products without regulatory approval. Although we obtained regulatory
approval for ARCALYST® (rilonacept) for the treatment of CAPS in the United States, we
may be unable to obtain regulatory approval of ARCALYST in any other country or in any other
indication. Regulatory agencies outside the United States may require additional information or
data with respect to any future submission for ARCALYST for the treatment of CAPS.

If we do not obtain and maintain regulatory approval for our product candidates, including
ARCALYST for the treatment of diseases other than CAPS, the value of our company and our results of
operations will be harmed. In the United States, we must obtain and maintain approval from the
United States Food and Drug Administration (FDA) for each drug we intend to sell. Obtaining FDA
approval is typically a lengthy and expensive process, and approval is highly uncertain. Foreign
governments also regulate drugs distributed in their country and approval in any country is likely
to be a lengthy and expensive process, and approval is highly uncertain. Except for the recent FDA
approval of ARCALYST for the treatment of CAPS, none of our product candidates has ever received
regulatory approval to be marketed and sold in the United States or any other country. We may never
receive regulatory approval for any of our product candidates.

Before approving a new drug or biologic product, the FDA requires that the facilities at which
the product will be manufactured be in compliance with current good manufacturing practices, or
cGMP requirements. Manufacturing product candidates in compliance with these regulatory
requirements is complex, time-consuming, and expensive. To be successful, our products must be
manufactured for development, following approval, in commercial quantities, in compliance with
regulatory requirements, and at competitive costs. If we or any of our product collaborators or
third-party manufacturers, product packagers, or labelers are unable to maintain regulatory
compliance, the FDA can impose regulatory sanctions, including, among other things, refusal to
approve a pending application for a new drug or biologic product, or revocation of a pre-existing
approval. As a result, our business, financial condition, and results of operations may be
materially harmed.

In addition to the FDA and other regulatory agency regulations in the United States, we are
subject to a variety of foreign regulatory requirements governing human clinical trials,
manufacturing, marketing and approval of drugs, and commercial sale and distribution of drugs in
foreign countries. The foreign regulatory approval process includes all of the risks associated
with FDA approval as well as country specific regulations. Whether or not we obtain FDA approval
for a product in the United States, we must obtain approval by the comparable

regulatory authorities of foreign countries before we can commence clinical trials or
marketing of ARCALYST for the treatment of CAPS or any of our product candidates in those
countries.

If the testing or use of our products harms people, we could be subject to costly and damaging
product liability claims.

The testing, manufacturing, marketing, and sale of drugs for use in people expose us to
product liability risk. Any informed consent or waivers obtained from people who sign up for our
clinical trials may not protect us from liability or the cost of litigation. We may be subject to
claims by CAPS patients who use ARCALYST that they have been injured by a side effect associated
with the drug. Our product liability insurance may not cover all potential liabilities or may not
completely cover any liability arising from any such litigation. Moreover, we may not have access
to liability insurance or be able to maintain our insurance on acceptable terms.

If we market and sell ARCALYST®(rilonacept) in a way that violates federal or state
fraud and abuse laws, we may be subject to civil or criminal penalties.

In addition to FDA and related regulatory requirements, we are subject to health care fraud
and abuse laws, such as the federal False Claims Act, the anti-kickback provisions of the federal
Social Security Act, and other state and federal laws and regulations. Federal and state
anti-kickback laws prohibit, among other things, knowingly and willfully offering, paying,
soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or
arranging for the purchase, lease or order of any health care item or service reimbursable under
Medicare, Medicaid, or other federally or state financed health care programs.

Federal false claims laws prohibit any person from knowingly presenting, or causing to be
presented, a false claim for payment to the federal government, or knowingly making, or causing to
be made, a false statement to get a false claim paid. Pharmaceutical companies have been
prosecuted under these laws for a variety of alleged promotional and marketing activities, such as
allegedly providing free product to customers with the expectation that the customers would bill
federal programs for the product; reporting to pricing services inflated average wholesale prices
that were then used by federal programs to set reimbursement rates; engaging in promotion for uses
that the FDA has not approved, or off-label uses, that caused claims to be submitted to Medicaid
for non-covered off-label uses; and submitting inflated best price information to the Medicaid
Rebate program.

The majority of states also have statutes or regulations similar to the federal anti-kickback
law and false claims laws, which apply to items and services reimbursed under Medicaid and other
state programs, or, in several states, apply regardless of the payer. Sanctions under these
federal and state laws may include civil monetary penalties, exclusion of a manufacturers products
from reimbursement under government programs, criminal fines, and imprisonment.

Even if we are not determined to have violated these laws, government investigations into
these issues typically require the expenditure of significant resources and generate negative
publicity, which would also harm our financial condition. Because of the breadth of these laws and
the narrowness of the safe harbors, it is possible that some of our business activities could be
subject to challenge under one or more of such laws.

In recent years, several states and localities, including California, the District of
Columbia, Maine, Minnesota, Nevada, New Mexico, Vermont, and West Virginia, have enacted
legislation requiring pharmaceutical companies to establish marketing compliance programs, and file
periodic reports with the state or make periodic public disclosures on sales, marketing, pricing,
clinical trials, and other activities. Similar legislation is being considered in other states.
Many of these requirements are new and uncertain, and the penalties for failure to comply with
these requirements are unclear. Nonetheless, if we are found not to be in full compliance with
these laws, we could face enforcement action and fines and other penalties, and could receive
adverse publicity.

Our operations may involve hazardous materials and are subject to environmental, health, and safety
laws and regulations. We may incur substantial liability arising from our activities involving the
use of hazardous materials.

As a biopharmaceutical company with significant manufacturing operations, we are subject to
extensive environmental, health, and safety laws and regulations, including those governing the use
of hazardous materials. Our research and development and manufacturing activities involve the
controlled use of chemicals, viruses, radioactive compounds, and other hazardous materials. The
cost of compliance with environmental, health, and safety regulations is substantial. If an
accident involving these materials or an environmental discharge were to occur, we could be held
liable for any resulting damages, or face regulatory actions, which could exceed our resources or
insurance coverage.

Changes in the securities laws and regulations have increased, and are likely to continue to
increase, our costs.

The Sarbanes-Oxley Act of 2002, which became law in July 2002, has required changes in some of
our corporate governance, securities disclosure and compliance practices. In response to the
requirements of that Act, the SEC and the NASDAQ Stock Market have promulgated rules and listing
standards covering a variety of subjects. Compliance with these rules and listing standards has
increased our legal costs, and significantly increased our accounting and auditing costs, and we
expect these costs to continue. These developments may make it more difficult and more expensive
for us to obtain directors and officers liability insurance. Likewise, these developments may
make it more difficult for us to attract and retain qualified members of our board of directors,
particularly independent directors, or qualified executive officers.

In future years, if we are unable to conclude that our internal control over financial reporting is
effective, the market value of our common stock could be adversely affected.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring
public companies to include a report of management on the Companys internal control over financial
reporting in their annual reports on Form 10-K that contains an assessment by management of the
effectiveness of our internal control over financial reporting. In addition, the independent
registered public accounting firm auditing our financial statements must attest to and report on
the effectiveness of our internal control over financial reporting. Our independent registered
public accounting firm provided us with an unqualified report as to the effectiveness of our
internal control over financial reporting as of December 31, 2007, which report is included in

our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 which was filed
with the Securities and Exchange Commission on February 27, 2008. However, we cannot assure you
that management or our independent registered public accounting firm will be able to provide such
an unqualified report as of future year-ends. In this event, investors could lose confidence in
the reliability of our financial statements, which could result in a decrease in the market value
of our common stock. In addition, if it is determined that deficiencies in the design or operation
of internal controls exist and that they are reasonably likely to adversely affect our ability to
record, process, summarize, and report financial information, we would likely incur additional
costs to remediate these deficiencies and the costs of such remediation could be material.

Risks Related to Our Reliance on Third Parties

If our antibody collaboration with sanofi-aventis is terminated, our business operations and our
ability to discover, develop, manufacture, and commercialize our pipeline of product candidates in
the time expected, or at all, would be materially harmed.

We rely heavily on the funding from sanofi-aventis to support our target discovery and
antibody research and development programs. Sanofi-aventis has committed to pay up to $475.0
million between 2008 and 2012 to fund our efforts to identify and validate drug discovery targets
and pre-clinically develop fully human monoclonal antibodies against such targets. In addition,
sanofi-aventis funds almost all of the development expenses incurred by both companies in
connection with the clinical development of antibodies that sanofi-aventis elects to co-develop
with us. We rely on sanofi-aventis to fund these activities. In addition, with respect to those
antibodies that sanofi-aventis elects to co-develop with us, such as REGN88, we rely on
sanofi-aventis to lead much of the clinical development efforts and assist with obtaining
regulatory approval, particularly outside the United States. We also rely on sanofi-aventis to
lead the commercialization efforts to support all of the antibody products that are co-developed by
sanofi-aventis and us. If sanofi-aventis does not elect to co-develop the antibodies that we
discover or opts-out of their development, we would be required to fund and oversee on our own the
clinical trials, any regulatory responsibilities, and the ensuing commercialization efforts to
support our antibody products. Sanofi-aventis may terminate the collaboration for our material
breach or, in the case of the discovery agreement, if certain minimal criteria for the discovery
program are not achieved by December 31, 2010. If sanofi-aventis terminates the antibody
collaboration or fails to comply with its payment obligations thereunder, our business, financial
condition, and results of operations would be materially harmed. We would be required to either
expend substantially more resources than we have anticipated to support our research and
development efforts, which could require us to seek additional funding that might not be available
on favorable terms or at all, or materially cut back on such activities. While we cannot assure
you that any of the antibodies from this collaboration will ever be successfully developed and
commercialized, if sanofi-aventis does not perform its obligations with respect to antibodies that
it elects to co-develop, our ability to develop, manufacture, and commercialize these antibody
product candidates will be significantly adversely affected.

If our collaboration with sanofi-aventis for aflibercept (VEGF Trap) is terminated, or
sanofi-aventis materially breaches its obligations thereunder, our business, operations and
financial condition, and our ability to develop, manufacture, and commercialize aflibercept in the
time expected, or at all, would be materially harmed.

We rely heavily on sanofi-aventis to lead much of the development of aflibercept.
Sanofi-aventis funds all of the development expenses incurred by both companies in connection with
the aflibercept program. If the aflibercept program continues, we will rely on sanofi-aventis to
assist with funding the aflibercept program, provide commercial manufacturing capacity, enroll and
monitor clinical trials, obtain regulatory approval, particularly outside the United States, and
lead the commercialization of aflibercept. While we cannot assure you that aflibercept will ever be
successfully developed and commercialized, if sanofi-aventis does not perform its obligations in a
timely manner, or at all, our ability to develop, manufacture, and commercialize aflibercept in
cancer indications will be significantly adversely affected. Sanofi-aventis has the right to
terminate its collaboration agreement with us at any time upon twelve months advance notice. If
sanofi-aventis were to terminate its collaboration agreement with us, we would not have the
resources or skills to replace those of our partner, which could require us to seek additional
funding that might not be available on favorable terms or at all, and could cause significant
delays in the development and/or manufacture of aflibercept and result in substantial additional
costs to us. We have limited commercial capabilities and would have to develop or outsource these
capabilities. Termination of the sanofi-aventis collaboration agreement for aflibercept would
create substantial new and additional risks to the successful development and commercialization of
aflibercept.

If our collaboration with Bayer HealthCare for VEGF Trap-Eye is terminated, or Bayer HealthCare
materially breaches its obligations thereunder, our business, operations and financial condition,
and our ability to develop and commercialize VEGF Trap-Eye in the time expected, or at all, would
be materially harmed.

We rely heavily on Bayer HealthCare to assist with the development of VEGF Trap-Eye. Under our
agreement with them, Bayer HealthCare is required to fund approximately half of the development
expenses incurred by both companies in connection with the global VEGF Trap-Eye development
program. If the VEGF Trap-Eye program continues, we will rely on Bayer HealthCare to assist with
funding the VEGF Trap-Eye development program, lead the development of VEGF Trap-Eye outside the
United States, obtain regulatory approval outside the United States, and provide all sales,
marketing and commercial support for the product outside the United States. In particular, Bayer
HealthCare has responsibility for selling VEGF Trap-Eye outside the United States using its sales
force. While we cannot assure you that VEGF Trap-Eye will ever be successfully developed and
commercialized, if Bayer HealthCare does not perform its obligations in a timely manner, or at all,
our ability to develop, manufacture, and commercialize VEGF Trap-Eye outside the United States will
be significantly adversely affected. Bayer HealthCare has the right to terminate its collaboration
agreement with us at any time upon six or twelve months advance notice, depending on the
circumstances giving rise to termination. If Bayer HealthCare were to terminate its collaboration
agreement with us, we would not have the resources or skills to replace those of our partner, which
could require us to seek additional funding that might not be available on favorable terms or at
all, and could cause significant delays in the development and/or commercialization of VEGF
Trap-Eye outside the United States and result in substantial additional costs to us. We have
limited commercial capabilities

and would have to develop or outsource these capabilities outside the United States.
Termination of the Bayer HealthCare collaboration agreement would create substantial new and
additional risks to the successful development and commercialization of VEGF Trap-Eye.

Our collaborators and service providers may fail to perform adequately in their efforts to support
the development, manufacture, and commercialization of ARCALYST®(rilonacept) and our
drug candidates.

We depend upon third-party collaborators, including sanofi-aventis, Bayer HealthCare, and
service providers such as clinical research organizations, outside testing laboratories, clinical
investigator sites, and third-party manufacturers and product packagers and labelers, to assist us
in the manufacture and development of our product candidates. If any of our existing collaborators
or service providers breaches or terminates its agreement with us or does not perform its
development or manufacturing services under an agreement in a timely manner or at all, we could
experience additional costs, delays, and difficulties in the manufacture, development or ultimate
commercialization of our product candidates.

We rely on third party service providers to support the distribution of ARCALYST and many
other related activities in connection with the commercialization of ARCALYST for the treatment of
CAPS. We cannot be certain that these third parties will perform adequately. If these service
providers do not perform their services adequately, our efforts to market and sell ARCALYST for the
treatment of CAPS will not be successful.

Risks Related to the Manufacture of Our Product Candidates

We have limited manufacturing capacity, which could inhibit our ability to successfully develop or
commercialize our drugs.

Our manufacturing facility is likely to be inadequate to produce sufficient quantities of
product for commercial sale. We intend to rely on our corporate collaborators, as well as contract
manufacturers, to produce the large quantities of drug material needed for commercialization of our
products. We rely entirely on third-party manufacturers for filling and finishing services. We will
have to depend on these manufacturers to deliver material on a timely basis and to comply with
regulatory requirements. If we are unable to supply sufficient material on acceptable terms, or if
we should encounter delays or difficulties in our relationships with our corporate collaborators or
contract manufacturers, our business, financial condition, and results of operations may be
materially harmed.

We must expand our own manufacturing capacity to support the planned growth of our clinical
pipeline. Moreover, we may expand our manufacturing capacity to support commercial production of
active pharmaceutical ingredients, or API, for our product candidates. This will require
substantial additional expenditures, and we will need to hire and train significant numbers of
employees and managerial personnel to staff our facility. Start-up costs can be large and scale-up
entails significant risks related to process development and manufacturing yields. We may be unable
to develop manufacturing facilities that are sufficient to produce drug material for clinical
trials or commercial use. This may delay our clinical development plans and interfere with our
efforts to commercialize our products. In addition, we may be unable to secure adequate filling

and finishing services to support our products. As a result, our business, financial
condition, and results of operations may be materially harmed.

We may be unable to obtain key raw materials and supplies for the manufacture of
ARCALYST® (rilonacept) and our product candidates. In addition, we may face
difficulties in developing or acquiring production technology and managerial personnel to
manufacture sufficient quantities of our product candidates at reasonable costs and in compliance
with applicable quality assurance and environmental regulations and governmental permitting
requirements.

If any of our clinical programs are discontinued, we may face costs related to the unused capacity
at our manufacturing facilities.

We have large-scale manufacturing operations in Rensselaer, New York. We use our facilities to
produce bulk product for clinical and preclinical candidates for ourselves and our collaborations.
If our clinical candidates are discontinued, we will have to absorb one hundred percent of related
overhead costs and inefficiencies.

Third-party supply failures or a business interruption at our manufacturing facility in Rensselaer,
New York could adversely affect our ability to supply our products.

We manufacture all of our bulk drug materials for ARCALYST and our product candidates at our
manufacturing facility in Rensselaer, New York. We would be unable to supply our product
requirements if we were to cease production due to regulatory requirements or action, business
interruptions, labor shortages or disputes, contaminations, or other problems at the facility.

Certain raw materials necessary for manufacturing and formulation of ARCALYST and our product
candidates are provided by single-source unaffiliated third-party suppliers. In addition, we rely
on certain third parties to perform filling, finishing, distribution, and other services related to
the manufacture of our products. We would be unable to obtain these raw materials or services for
an indeterminate period of time if any of these third-parties were to cease or interrupt production
or otherwise fail to supply these materials, products, or services to us for any reason, including
due to regulatory requirements or action, adverse financial developments at or affecting the
supplier, business interruptions, or labor shortages or disputes. This, in turn, could materially
and adversely affect our ability to manufacture or supply ARCALYST or our product candidates for
use in clinical trials, which could materially and adversely affect our business and future
prospects.

Also, certain of the raw materials required in the manufacturing and the formulation of our
clinical candidates may be derived from biological sources, including mammalian tissues, bovine
serum, and human serum albumin. There are certain European regulatory restrictions on using these
biological source materials. If we are required to substitute for these sources to comply with
European regulatory requirements, our clinical development activities may be delayed or
interrupted.

If we are unable to establish sales, marketing, and distribution capabilities, or enter into
agreements with third parties to do so, we will be unable to successfully market and sell future
products.

We are marketing and selling ARCALYST for the treatment of CAPS ourselves in the United
States, primarily through third party service providers. We have no sales or distribution
personnel and have only a small staff with commercial capabilities. For product candidates in
development, if we are unable to obtain those capabilities, either by developing our own
organizations or entering into agreements with service providers, we will not be able to
successfully sell any products that we may obtain regulatory approval for and bring to market in
the future. In that event, we will not be able to generate significant revenue, even if our product
candidates are approved. We cannot guarantee that we will be able to hire the qualified sales and
marketing personnel we need or that we will be able to enter into marketing or distribution
agreements with third-party providers on acceptable terms, if at all. Under the terms of our
collaboration agreement with sanofi-aventis, we currently rely on sanofi-aventis for sales,
marketing, and distribution of aflibercept in cancer indications, should it be approved in the
future by regulatory authorities for marketing. We will have to rely on a third party or devote
significant resources to develop our own sales, marketing, and distribution capabilities for our
other product candidates, including VEGF Trap-Eye in the United States, and we may be unsuccessful
in developing our own sales, marketing, and distribution organization.

There may be too few patients with CAPS to profitably commercialize ARCALYST®(rilonacept) in this indication.

Our only approved product is ARCALYST for the treatment of CAPS, a group of rare, inherited
auto-inflammatory diseases. These rare diseases affect a very small group of people. The
incidence of CAPS has been reported to be approximately 1 in 1,000,000 people in the United States.
As a result, there may be too few patients with CAPS to profitably commercialize ARCALYST in this
indication.

Even if our product candidates are approved for marketing, their commercial success is highly
uncertain because our competitors have received approval for products with the same mechanism of
action, and competitors may get to the marketplace with better or lower cost drugs.

There is substantial competition in the biotechnology and pharmaceutical industries from
pharmaceutical, biotechnology, and chemical companies. Many of our competitors have substantially
greater research, preclinical and clinical product development and manufacturing capabilities, and
financial, marketing, and human resources than we do. Our smaller competitors may also enhance
their competitive position if they acquire or discover patentable inventions, form collaborative
arrangements, or merge with large pharmaceutical companies. Even if we achieve product
commercialization, our competitors have achieved, and may continue to achieve, product
commercialization before our products are approved for marketing and sale.

Genentech has an approved VEGF antagonist, Avastin® (beracizumab) (Genentech), on
the market for treating certain cancers and many different pharmaceutical and biotechnology

companies are working to develop competing VEGF antagonists, including Novartis, OSI
Pharmaceuticals, Inc., and Pfizer, Inc. Many of these molecules are farther along in development
than aflibercept and may offer competitive advantages over our molecule. Novartis has an ongoing
Phase 3 clinical development program evaluating an orally delivered VEGF tyrosine kinase inhibitor
in different cancer settings. Each of Pfizer and Onyx Pharmaceuticals, Inc., (together with its
partner Bayer HealthCare) has received approval from the FDA to market and sell an oral medication
that targets tumor cell growth and new vasculature formation that fuels the growth of tumors. The
marketing approvals for Genentechs VEGF antagonist, Avastin® (Genentech), and their
extensive, ongoing clinical development plan for Avastin® (Genentech) in other cancer
indications, make it more difficult for us to enroll patients in clinical trials to support
aflibercept and to obtain regulatory approval of aflibercept in these cancer settings. This may
delay or impair our ability to successfully develop and commercialize aflibercept. In addition,
even if aflibercept is ever approved for sale for the treatment of certain cancers, it will be
difficult for our drug to compete against Avastin® (Genentech) and the FDA approved
kinase inhibitors, because doctors and patients will have significant experience using these
medicines. In addition, an oral medication may be considerably less expensive for patients than a
biologic medication, providing a competitive advantage to companies that market such products.

The market for eye disease products is also very competitive. Novartis and Genentech are
collaborating on the commercialization and further development of a VEGF antibody fragment,
ranibizumab (Lucentis®), for the treatment of age-related macular degeneration (wet AMD)
and other eye indications that was approved by the FDA in June 2006. Many other companies are
working on the development of product candidates for the potential treatment of wet AMD that act by
blocking VEGF, VEGF receptors, and through the use of soluble ribonucleic acids (sRNAs) that
modulate gene expression. In addition, ophthalmologists are using off-label a third-party
reformatted version of Genentechs approved VEGF antagonist, Avastin®, with success for
the treatment of wet AMD. The National Eye Institute recently initiated a Phase 3 trial comparing
Lucentis® (Genentech) to Avastin® (Genentech) in the treatment of wet AMD.
The marketing approval of Lucentis® (Genentech) and the potential off-label use of
Avastin® (Genentech) make it more difficult for us to enroll patients in our clinical
trials and successfully develop VEGF Trap-Eye. Even if VEGF Trap-Eye is ever approved for sale for
the treatment of eye diseases, it may be difficult for our drug to compete against
Lucentis® (Genentech), because doctors and patients will have significant experience
using this medicine. Moreover, the relatively low cost of therapy with Avastin®
(Genentech) in patients with wet AMD presents a further competitive challenge in this indication.

The availability of highly effective FDA approved TNF-antagonists such as Enbrel®
(Immunex), Remicade® (Centocor), and Humira® (Abbott Laboratories), and the
IL-1 receptor antagonist Kineret® (Amgen), and other marketed therapies makes it more
difficult to successfully develop and commercialize ARCALYST® (rilonacept). This is one
of the reasons we discontinued the development of ARCALYST in adult rheumatoid arthritis. In
addition, even if ARCALYST is ever approved for sale in indications where TNF-antagonists are
approved, it will be difficult for our drug to compete against these FDA approved TNF-antagonists
because doctors and patients will have significant experience using these effective medicines.
Moreover, in such indications these approved therapeutics may offer competitive advantages over
ARCALYST, such as requiring fewer injections.

There are both small molecules and antibodies in development by other companies that are
designed to block the synthesis of interleukin-1 or inhibit the signaling of interleukin-1. For
example, Eli Lilly and Company, Xoma Ltd., and Novartis are each developing antibodies to
interleukin-1 and Amgen is developing an antibody to the interleukin-1 receptor. Novartis has
commenced advanced clinical testing of its IL-1 antibody in Muckle-Wells Syndrome, which is part of
the group of rare genetic diseases called CAPS. Novartis recently announced that its IL-1 antibody
demonstrated long-lasting clinical remission in patients with CAPS and that its clinical candidate
could develop into a major therapeutic advance in the treatment of CAPS. Novartis IL-1 antibody
and these other drug candidates could offer competitive advantages over ARCALYST. The successful
development of these competing molecules could impair our ability to successfully commercialize
ARCALYST.

We are developing REGN88 for the treatment of rheumatoid arthritis. The availability of highly
effective FDA approved TNF-antagonists such as Enbrel® (Immunex), Remicade®
(Centocor), and Humira® (Abbott), and other marketed therapies makes it more difficult
to successfully develop and commercialize REGN88. REGN88 is a human monoclonal antibody targeting
the interleukin-6 receptor. Roche is developing an antibody against the interleukin-6 (IL-6)
receptor. Roches antibody has completed Phase 3 clinical trials and is the subject of a filed
Biologics License Application with the FDA. Roches IL-6 receptor antibody, other clinical
candidates in development, and drugs now or in the future on the market to treat rheumatoid
arthritis could offer competitive advantages over REGN88. This could delay or impair our ability
to successfully develop and commercialize REGN88.

The successful commercialization of ARCALYST®(rilonacept) and our product candidates
will depend on obtaining coverage and reimbursement for use of these products from third-party
payers and these payers may not agree to cover or reimburse for use of our products.

Our product candidates, if commercialized, may be significantly more expensive than
traditional drug treatments. Our future revenues and profitability will be adversely affected if
United States and foreign governmental, private third-party insurers and payers, and other
third-party payers, including Medicare and Medicaid, do not agree to defray or reimburse the cost
of our products to the patients. If these entities refuse to provide coverage and reimbursement
with respect to our products or provide an insufficient level of coverage and reimbursement, our
products may be too costly for many patients to afford them, and physicians may not prescribe them.
Many third-party payers cover only selected drugs, making drugs that are not preferred by such
payer more expensive for patients, and require prior authorization or failure on another type of
treatment before covering a particular drug. Payers may especially impose these obstacles to
coverage on higher-priced drugs, as our product candidates are likely to be.

We market and sell ARCALYST in the United States for the treatment of a group of rare genetic
disorders called CAPS. There may be too few patients with CAPS to profitably commercialize
ARCALYST. Physicians may not prescribe ARCALYST, and CAPS patients may not be able to afford
ARCALYST, if third party payers do not agree to reimburse the cost of ARCALYST therapy and this
would adversely affect our ability to commercialize ARCALYST profitably.

In addition to potential restrictions on coverage, the amount of reimbursement for our

products may also reduce our profitability. In the United States, there have been, and we
expect will continue to be, actions and proposals to control and reduce healthcare costs.
Government and other third-party payers are challenging the prices charged for healthcare products
and increasingly limiting, and attempting to limit, both coverage and level of reimbursement for
prescription drugs.

Since ARCALYST® (rilonacept) and our product candidates in clinical development,
will likely be too expensive for most patients to afford without health insurance coverage, if our
products are unable to obtain adequate coverage and reimbursement by third-party payers our ability
to successfully commercialize our product candidates may be adversely impacted. Any limitation on
the use of our products or any decrease in the price of our products will have a material adverse
effect on our ability to achieve profitability.

In certain foreign countries, pricing, coverage and level of reimbursement of prescription
drugs are subject to governmental control, and we may be unable to negotiate coverage, pricing, and
reimbursement on terms that are favorable to us. In some foreign countries, the proposed pricing
for a drug must be approved before it may be lawfully marketed. The requirements governing drug
pricing vary widely from country to country. For example, the European Union provides options for
its member states to restrict the range of medicinal products for which their national health
insurance systems provide reimbursement and to control the prices of medicinal products for human
use. A member state may approve a specific price for the medicinal product or it may instead adopt
a system of direct or indirect controls on the profitability of the company placing the medicinal
product on the market. Our results of operations may suffer if we are unable to market our products
in foreign countries or if coverage and reimbursement for our products in foreign countries is
limited.

Risk Related to Employees

We are dependent on our key personnel and if we cannot recruit and retain leaders in our research,
development, manufacturing, and commercial organizations, our business will be harmed.

We are highly dependent on certain of our executive officers. If we are not able to retain any
of these persons or our Chairman, our business may suffer. In particular, we depend on the services
of P. Roy Vagelos, M.D., the Chairman of our board of directors, Leonard Schleifer, M.D., Ph.D.,
our President and Chief Executive Officer, George D. Yancopoulos, M.D., Ph.D., our Executive Vice
President, Chief Scientific Officer and President, Regeneron Research Laboratories, and Neil Stahl,
Ph.D., our Senior Vice President, Research and Development Sciences. There is intense competition
in the biotechnology industry for qualified scientists and managerial personnel in the development,
manufacture, and commercialization of drugs. We may not be able to continue to attract and retain
the qualified personnel necessary for developing our business.

There has been significant volatility in our stock price and generally in the market prices of
biotechnology companies securities. Various factors and events may have a significant impact on
the market price of our common stock. These factors include, by way of example:



progress, delays, or adverse results in clinical trials;



announcement of technological innovations or product candidates by us or competitors;



fluctuations in our operating results;



unsuccessful commercialization of ARCALYST® (rilonacept) for the treatment of
CAPS;



public concern as to the safety or effectiveness of ARCALYST or any of our product
candidates;



developments in our relationship with collaborative partners;



developments in the biotechnology industry or in government regulation of healthcare;



large sales of our common stock by our executive officers, directors, or significant
shareholders;



arrivals and departures of key personnel; and



general market conditions.

The trading price of our Common Stock has been, and could continue to be, subject to wide
fluctuations in response to these and other factors, including the sale or attempted sale of a
large amount of our Common Stock in the market. Broad market fluctuations may also adversely affect
the market price of our Common Stock.

Future sales of our common stock by our significant shareholders or us may depress our stock price
and impair our ability to raise funds in new share offerings.

A small number of our shareholders beneficially own a substantial amount of our common stock. As of
April 15, 2008, our eight largest shareholders beneficially owned 57.7% of our outstanding shares
of Common Stock, assuming, in the case of Leonard S. Schleifer, M.D. Ph.D., our Chief Executive
Officer, and P. Roy Vagelos, M.D., our Chairman, the conversion of their Class A Stock into Common
Stock and the exercise of all options held by them which are exercisable within 60 days of April
15, 2008. As of April 15, 2008, sanofi-aventis beneficially owned 14,799,552 shares of Common
Stock, representing approximately 19.3% of the shares of Common Stock then outstanding. Under our
investor agreement with sanofi-aventis, sanofi-aventis may not sell these shares until December 20,
2012 except under limited circumstances and subject to earlier termination rights of these
restrictions upon the occurrence of certain events. Notwithstanding these restrictions, if
sanofi-aventis, or our other significant shareholders or we, sell substantial amounts of our Common
Stock in the public market, or the perception that such sales may occur exists, the market price of
our Common Stock could fall. Sales of Common Stock by our significant shareholders, including
sanofi-aventis, also might make it more difficult for us to raise funds by selling equity or
equity-related securities in the future at a time and price that we deem appropriate.

Our existing shareholders may be able to exert significant influence over matters requiring
shareholder approval.

Holders of Class A Stock, who are generally the shareholders who purchased their stock from us
before our initial public offering, are entitled to ten votes per share, while holders of Common
Stock are entitled to one vote per share. As of April 15, 2008, holders of Class A Stock held
22.7% of the combined voting power of all of Common Stock and Class A Stock then outstanding.
These shareholders, if acting together, would be in a position to significantly influence the
election of our directors and to effect or prevent certain corporate transactions that require
majority or supermajority approval of the combined classes, including mergers and other business
combinations. This may result in our company taking corporate actions that you may not consider to
be in your best interest and may affect the price of our Common Stock. As of April 15, 2008:



our current executive officers and directors beneficially owned 12.5% of our outstanding
shares of Common Stock, assuming conversion of their Class A Stock into Common Stock and
the exercise of all options held by such persons which are exercisable within 60 days of
April 15, 2008, and 27.6% of the combined voting power of our outstanding shares of Common
Stock and Class A Stock, assuming the exercise of all options held by such persons which
are exercisable within 60 days of April 15, 2008; and



our eight largest shareholders beneficially owned 57.7% of our outstanding shares of
Common Stock, assuming, in the case of Leonard S. Schleifer, M.D., Ph.D., our Chief
Executive Officer, and P. Roy Vagelos, M.D., our Chairman, the conversion of their Class A
Stock into Common Stock and the exercise of all options held by them which are exercisable
within 60 days of April 15, 2008. In addition, these eight shareholders held 61.0% of the
combined voting power of our outstanding shares of Common Stock and Class A Stock, assuming
the exercise of all options held by our Chief Executive Officer and our Chairman which are
exercisable within 60 days of April 15, 2008.

Pursuant to an investor agreement, sanofi-aventis has agreed to vote its shares, at sanofi-aventis
election, either as recommended by our board of directors or proportionally with the votes cast by
our other shareholders, except with respect to certain change of control transactions, liquidation
or dissolution, stock issuances equal to or exceeding 10% of the then outstanding shares or voting
rights of Common Stock and Class A Stock, and new equity compensation plans or amendments if not
materially consistent with our historical equity compensation practices.

The anti-takeover effects of provisions of our charter, by-laws, and of New York corporate law and
the contractual standstill provisions in our investor agreement with sanofi-aventis, could deter,
delay, or prevent an acquisition or other change in control of us and could adversely affect the
price of our Common Stock.

Our amended and restated certificate of incorporation, our by-laws and the New York Business
Corporation Law contain various provisions that could have the effect of delaying or preventing a
change in control of our company or our management that shareholders may consider favorable or
beneficial. Some of these provisions could discourage proxy contests and make it more difficult for
you and other shareholders to elect directors and take other corporate

actions. These provisions could also limit the price that investors might be willing to pay in
the future for shares of our common stock. These provisions include:



authorization to issue blank check preferred stock, which is preferred stock that can
be created and issued by the board of directors without prior shareholder approval, with
rights senior to those of our common shareholders;



a staggered board of directors, so that it would take three successive annual meetings
to replace all of our directors;



a requirement that removal of directors may only be effected for cause and only upon the
affirmative vote of at least eighty percent (80%) of the outstanding shares entitled to
vote for directors, as well as a requirement that any vacancy on the board of directors may
be filled only by the remaining directors;



any action required or permitted to be taken at any meeting of shareholders may be taken
without a meeting, only if, prior to such action, all of our shareholders consent, the
effect of which is to require that shareholder action may only be taken at a duly convened
meeting;



any shareholder seeking to bring business before an annual meeting of shareholders must
provide timely notice of this intention in writing and meet various other requirements; and



under the New York Business Corporation Law, in addition to certain restrictions which
may apply to business combinations involving the Company and an interested shareholder,
a plan of merger or consolidation of the Company must be approved by two-thirds of the
votes of all outstanding shares entitled to vote thereon. See the risk factor immediately
above captioned Our existing shareholders may be able to exert significant influence over
matters requiring shareholder approval.

Until the later of the fifth anniversaries of the expiration or earlier termination of our
antibody collaboration agreements with sanofi-aventis or our aflibercept collaboration with
sanofi-aventis, sanofi-aventis will be bound by certain standstill provisions, which
contractually prohibit sanofi-aventis from acquiring more than certain specified percentages of the
Companys Class A Stock and Common Stock (taken together) or otherwise seeking to obtain control of
the Company.

In addition, we have a Change in Control Severance Plan and our chief executive officer has an
employment agreement that provides severance benefits in the event our officers are terminated as a
result of a change in control of the Company. Many of our stock options issued under our Amended
and Restated 2000 Long-Term Incentive Plan may become fully vested in connection with a change in
control of our company, as defined in the plan.

In May 2008, through privately negotiated transactions, we repurchased $50,000,000 aggregate
principal amount of our 5.5% Convertible Senior Subordinated Notes due October 17, 2008 (the
Notes). The redemption price averaged $1,010 per $1,000 principal amount outstanding, plus $6.95
of accrued but unpaid interest per $1,000 principal amount outstanding. On June 4, 2008, we filed
a Current Report on Form 8-K with the Securities and Exchange Commission to disclose such
repurchases and that our board of directors had authorized the repurchase from time to time in
privately negotiated transactions of up to the remaining $150.0 million in outstanding principal
amount of the Notes. Subsequently, in June 2008, we repurchased in privately negotiated
transactions an additional $31,347,000 aggregate principal amount of the Notes at an average
redemption price of approximately $1,010 per $1,000 principal amount outstanding, plus $8.12 of
accrued but unpaid interest per $1,000 principal amount outstanding.

Item 4. Submission of Matters to a Vote of Security Holders

On June 13, 2008, we conducted our Annual Meeting of Shareholders pursuant to due notice. A
quorum being present either in person or by proxy, the shareholders voted on the following matters:

1. To elect three directors to hold office for a three-year term as Class II directors, and
until their successors are duly elected and qualified.

2. To approve the amendment and restatement of the Companys 2000 Long-Term Incentive Plan,
as amended (the 2000 Plan), which increased by 10,000,000 the number of shares of common stock
authorized for issuance under the 2000 Plan, extended the term of the 2000 Plan until December 31,
2013 and included certain best practices in stock plan design, which approval also constituted
re-approval for purposes of Section 162(m) under the Internal Revenue Code of 1986, as amended, of
certain performance goals in the 2000 Plan that may be applied to awards thereunder.

3. To ratify the appointment of PricewaterhouseCoopers LLP as the Companys independent
registered public accounting firm for our fiscal year ending December 31, 2008.